Ramit Sethi Cautions Investors on 5 Costly Mistakes That Destroy Returns
Written by
Ashley Donohoe
Edited by
Cory Dudak
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While investing can help grow your money more effectively than using a savings account, common mistakes and risky moves could work against your efforts.
For example, a recent FINRA Foundation study found that 40% of investors were fine with taking above-average or substantial risks to earn large returns. Meanwhile, 13% fell for high-risk viral investments like meme stocks.
In a recent video, money expert Ramit Sethi discussed five red flags that should lead you to reconsider your investment behavior and decisions. Get his advice on why to avoid the worst, costly mistakes.
1. Believing You Have Control
Control might bring you comfort, but Sethi explained it works against you when it comes to investing. While you’re spending time trying to pick the perfect time to buy or sell for the highest return, you might miss out on more earnings potential than if you took a more passive approach.
“For example, if you had invested $10,000, just kept your money in the market for 15 years, you’d end up with about $30,700,” said Sethi. “But if you missed the best 30 investing days, you would only have $6,783, meaning you would have actually lost money.”
Sethi added that even professional active investors often don’t see above-market returns. So, rather than focusing on control, consider starting to invest as soon as possible and keeping the long term in mind. In a blog post, Sethi suggested consistently investing 20% of your gross pay.
2. Chasing Aspirational Beauty
Whether you want to show off or live that ideal life you saw on Instagram, you might make expensive purchases that are aspirational rather than practical. Sethi listed timeshares, oversized homes, fancy new cars and vacations as common examples.
Although you might see these things as a way to improve your life, it’s easy to overlook the financial drawbacks. For example, that new car will not only depreciate quickly, but also likely come with a big loan payment, which Experian noted averaged $748 per month in Q3 2025. Plus, aspirational purchases often involve phantom costs that can add to your regret.
Sethi advised carefully assessing affordability and importance before proceeding with such purchases. Also, remember that investments should provide a return rather than keep costing you money.
3. Losing to Financial Advisor Fees
While working with a financial advisor is helpful in some situations, it usually comes with fees that Sethi said often cost 1% of your assets under management (AUM). He described such fees as “confusing” and showed how they can amount to hundreds of thousands over the years.
In Sethi’s example, someone invested a $50,000 lump sum, contributed $1,000 per month for 35 years and earned a 7% return. If the person’s fee was just 0.2%, they would have around $2.1 million, but that amount drops to around $1.8 million with a 1% fee.
Since AUM fees can significantly cut into your wealth, Sethi advised against paying them. Instead, he suggested finding financial advisors who charge flat fees for fewer surprises.
4. Seeking Unrealistic Returns
If someone is promoting an investment they claim offers an unusually high return, there’s a good chance it’s a scam that puts your money at risk. Sethi mentioned Bernie Madoff’s Ponzi scheme, which misled investors into believing they could earn up to 18% to 20%, and ultimately resulted in about $65 billion in losses.
He said, “The truth is the market has returned approximately 10% a year on average since 1957, and almost nobody can consistently beat that.”
Even if you do beat the average return, consider that fees reduce your earnings. Plus, understand that returns have historically varied widely by year. For example, this NYU Stern data showed a 21.54% annual real return for the S&P 500 in 2024, compared to -23.01% in 2022.
5. Going for the ‘Next Big Thing’
Whether you read buzz online about some promising investment or hear directly from another investor, falling for the current trend can be a major financial mistake. Sethi discussed Justin Bieber’s Bored Ape NFT, which ultimately lost most of its value, along with meme stocks and altcoins.
While investing in the next hot thing can be tempting, remember that people often overemphasize the winners and conveniently overlook the losers. Sethi explained that this survivorship bias can even occur with mutual funds, so it’s important to research what you’re getting into, plan your portfolio wisely and be OK with loss if you do invest in risky assets.
“You never want to go all in on any single investment,” explained Sethi. “Instead, you want to diversify, and you want to understand how asset allocation works.”
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