7 Lessons From 30 Years of Investing

My Uncle gave me my first share of stock for my birthday in May of 1995.

That one share of Chevron set me on a path to learning to invest most effectively — by doing it myself.

All the books, blog posts, videos, courses, and talking heads are no substitute for brunt work and bruises.

I received a call from a local young broker the other day asking if I wanted him to review my retirement portfolio (I guess they don’t google your name before they cold-call).

The thought of a twenty-something who never experienced the 2008-2009 stock market or the dot-com bubble managing my portfolio just made me shake my head.

Even experienced money managers make critical errors.

I’ve made several mistakes over the years, and I draw from my successes, failures, and hindsight epiphanies every time I sit down to write or make a video.

Here are a few things I’ve learned. 

1. Stirring Water Doesn’t Make it Boil Faster 

Frequent money moves don’t accelerate the growth of your wealth. Active investing doesn’t improve returns.

In my 20s and early 30s, I spent a great deal of time tweaking spreadsheets, managing my finances, and actively buying and selling stocks. 

I was eager to experience the magic of compound interest.

Compound interest, of course, is a function of time, not trades. 

In hindsight, money was a hobby and an escape from a career I didn’t enjoy.

The frequent money moves didn’t make me wealthier, but I enjoyed it anyway and gained valuable experience. 

But constant activity can be detrimental to long-term gains.

2. Market Returns are not Mediocre

Market returns are simple to achieve — just buy a fund or ETF that tracks the market, and you’ve done it — minus a 0.03% fee.

Very few people actually do this. 

Instead, a trillion-something-dollar industry revolves around trying to eek an extra 1% or 2% gain above the market (“alpha”). 

Very few professionals achieve this outcome. 

There’s a common perception that the market offers average returns.

But the market IS NOT mediocre, and market returns DO NOT equal the average investor’s returns.

The market earns an A+, but most investors are B and C students.

The historical S&P 500 long-term average return is approximately 10% when dividends are reinvested.

Over the decades, these returns have had an extraordinary impact on wealth.

The longer your investment horizon and the cleaner your portfolio, the more likely you are to achieve excellent returns by simply investing in the S&P 500 or the total market. 

3. Beating the Market is not the Objective

Too much focus on portfolio management is devoted to beating the stock market. 

Objectives vary by age and needs. At times, wealth preservation or income generation may be the primary objective instead of total returns. 

Effectively, ALL professionally managed and DIY individual portfolios don’t beat the market over long periods. 

Why? 

Reason #1: They don’t buy “the market,” and it’s incredibly challenging (especially after fees) to beat it over the long term.

Reason #2: A properly diversified portfolio should hold not only U.S. stocks but also bonds, international stocks, cash, and possible alternative assets like precious metals, commodities, real estate, private credit, crypto, venture capital, or other assets.

Instead of beating the market, focus on diversifying to reduce risk and achieving benchmark returns for each asset class you own. 

For example, if your portfolio is 60/30/10 stocks-to-bonds-cash: 

• 60% of your portfolio should track against the stock market
• 30% of your portfolio should track against the total bond market
• 10% of your portfolio should track against high-yield savings rates

So in a given year, if stocks are up 10%, bonds are up 5%, and cash yields 4%: 

Your expected return would be 7.9% (not 10%).

=((0.6*0.1)+(0.3*0.05)+(0.1*0.04)) = 0.079 or 7.9%

If you work with an advisor, subtract another 1%. If they buy managed mutual funds, subtract another 0.50-1%.

Complexity beyond this simple example makes it very challenging to measure results. 

4. Simplicity Matters

Complexity is detrimental to DIY investor returns. 

A more complex portfolio requires greater investor attention and brainpower.

Time and brainpower spent managing an underperforming portfolio detract from our abilities to optimize earnings from a profession or business.

Worse, a complex financial portfolio complicates estate planning and can cause unnecessary stress in the event of an untimely exit. 

But don’t confuse diversification with complexity. An investment portfolio can be both diverse and simple.

Simplicity isn’t just easier — it’s often more effective.

Reversing complexity may be the hardest task of all.

5. We Will Steer Ourselves

Self-driving cars have arrived. When deployed at scale, these cars will be safer than most human drivers. 

However, no matter how much safer they become, a large portion of the population will continue to drive cars manually because they want to maintain control. 

This is very similar to DIY investors. We’d rather manage our money ourselves than let someone else do it. 

We don’t trust anyone else to manage our money and believe — rightfully — we can do the job just as well for a much lower cost. 

If you’re going to do the job, educate yourself. Retirement investing is no more complicated than sixth-grade math.

And just like learning to drive, time and education upfront can give you the confidence to stay in control for life.

6. Advisors are Like the Most Expensive Lawn Service Ever

Most healthy adults are capable of maintaining a yard. But sometimes, we hire lawn care because we don’t want to — or don’t have the time — to do the job ourselves.

Now imagine a lawn service that charges you per blade of grass.

As they fertilize, aerate, and control weeds to grow thicker grass, they earn more money.

The service might even plant a grass variety that sprouts the most blades per square foot but looks worse!

Your yard stays the same size — only the grass gets thicker.

And the mowing? That job never really changes.

Wouldn’t it make more sense to pay for the service, not the sprouts?

This is how many financial advisors operate: charging based on your assets under management (AUM), even when the effort doesn’t scale with your portfolio size.

Managing a $100,000 portfolio is essentially the same job as a $10,000,000 portfolio.

As your assets grow, AUM advisors take more of your money — and they’re very good at deemphasizing the fee withdrawal, so it’s hard to know how much.

The “aligned incentive” of tethering fees to AUM is a myth. If true, it would encourage riskier bets and higher returns.

Instead, advisors simply preserve wealth and benefit from higher AUM as the market grows over the long term.

Educate yourself and self-manage to save tens to hundreds of thousands over your investing life. Buy low-cost index funds that track the market or asset benchmark. Keep it simple. 

If you hire a financial advisor, think of them like a lawn service — outsourcing the work.

Choose one that charges a flat fee.

7. Speculative Investing is OK

90% to 95% of a DIY retirement investment portfolio should be simple, diversified, and tied to benchmark returns. 

However, we should not be ashamed of our desire to “strike it rich”, “hit a home run”, or “shoot for the moon” with investment endeavors. 

The greatest wealth creation stories in history started with taking a big risk. 

It is OK for us to take investment risks, too, as long as they are measured, within our sphere of competence, and made with money (or time) we can afford to lose. 

If you limit your speculation to just 5% of invested assets, you can pursue those hunches, ideas spawned from professional expertise, or investment opportunities you’d regret missing without derailing your retirement. 

But don’t guess or throw good money at bad ideas. Develop an edge and be selective.

Some ideas might work big, but many will fail and could even reduce your overall returns. To some, the risk is worth the potential return. 

“Sound investment advice” is boring and often tailored to benefit the industry incumbents. That may be why the emergence of cryptocurrency investing is so loved by independent investors and hated by the status quo.