The Big Investing Mistake Even the Smartest People Make, According to Money Psychology Expert
Written by
Karen Doyle
Edited by
Zuri Anderson
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Investing is big business, and a lot of people make a lot of money telling other people what to do with their money. Many investors are convinced they need to pay someone smarter than they are for financial advice.
Morgan Housel, author of “The Psychology of Money,” has a different take. Here’s what she has to say about the biggest investing mistake smart people make.
It’s Not That Complicated
Part of the allure of investing is that there are so many theories about when and what to buy. There are charts, metrics and patterns that can make investing a full-time job. Do you buy or sell when you see a double top? What about head-and-shoulders or cup-and-handle? Some investors spend a lot of time analyzing data to inform their investing decisions.
Housel said you don’t need to follow any of these to be a successful investor.
“The more complicated you make it, the worse you’re probably going to do,” said Housel. She suggests that investors “make it as brainless and simple and boring as you can.”
How To Invest in the Most Boring Way Possible
While mutual fund managers and professional investors try to beat the market indices, those who invest in the S&P 500 are usually doing better.
According to Morningstar, fewer than half of active fund managers outperformed the index in 2024. Over the past 10 years, just 7% of large-cap equity funds outperformed their passive rivals.
“You don’t have to pick and choose different socks and be really strategic,” said Housel, “because that often doesn’t work out very well, at least for most investors.”
Buy and Hold and Hold and Hold
Rather than buying “the next big thing,” and selling when it starts to show signs of weakness, you can buy an S&P 500 index fund, hold it virtually forever, and be in pretty good shape.
“If you can be an average investor for an above-average period of time, just earn(ing) average market returns every year for the next 20 years, you’ll do amazing,” said Housel. “The simple people who can be simple and average for 50 years are the ones who end up doing the best.”
Committing to a buy-and-hold strategy takes a lot of the emotion out of investing, keeping you in the market over the long term.
“The question you want to ask when investing is not, ‘What are the highest returns that I can earn?’ Rather, it’s, ‘What returns can I keep going for the longest period of time?'” Housel said.
Buying an index fund regularly and holding your position over the long term is a great way to make sure your returns keep going over time.
Warren Buffett Agrees
Legendary investor Warren Buffett, often called The Oracle of Omaha, agrees that passive investing is the way to get ahead.
“By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals,” Buffett said in a 1993 letter to Berkshire Hathaway shareholders.
Buffett also encourages consistency.
“Keep buying it through thick and thin and especially through thin, he told CNBC’s On The Money podcast in 2017. “I think it’s the right thing that makes the most sense practically all of the time.”
Those investors who continually chase the “next big thing” or who buy and sell like it’s their full-time job may get an adrenaline rush when they see a big gain. But the “boring” investor will likely have a larger portfolio in the long run, and isn’t that what we all really want?
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