Many people start out managing their own investments. But as their earnings and assets grow, their financial needs and challenges become more complex—and continuing to go it alone could prove costly in terms of investing miscues. Consider three common mistakes that can reduce returns and increase anxiety:

1. Trying to Time the Market

Investors may be tempted to cash out of the stock market to avoid a predicted downturn. But accurately forecasting the market’s direction to time when to buy and sell is a guessing game. Missing only a brief period of strong market performance can drastically affect your lifetime wealth.

James Gruber: Welcome, Kunal. What brings you to Australia?

Kunal Kapoor: Well, I've been accused of following Taylor Swift around, but that is definitely not the case. I'm here obviously because Morningstar has a large presence in Australia and just an opportunity to meet clients, checking on our teams, that kind of thing.

Gruber: You've come as markets reach record highs. Is it a time for investors to rejoice or to be cautious?

A podcast listener asks:

How do you both manage to produce podcasts every week, handle your jobs, write, read, and raise families without burning out? How do you maintain this balance? What strategies do you use to recharge yourselves? Personally, when I go on vacation, I completely disconnect from work, yet I’ve noticed you guys continue podcasting even during your vacations.

A reader asks:

I am 73, my wife is 58 and I have a 15 year old son. We own a small farm and house in Iowa. We also own three properties in Spain where we spend most of the year. We have no debt and are sitting on 2 million in cash, most of it is short term bills. I deal in vintage guitars and will keep doing it as long as I can. We have a great life and are careful with our spending. I would like to have a plan to create generational wealth. Is this possible? Any suggestions?

I love this question because it shows there is no single path to wealth-building.

When trying to outperform an index, many investors will try to trade between funds focused on different market segments and asset classes. But such an active investment approach isn't without costs. In fact, market timing can increase return volatility and add unnecessary uncertainty to the overall experience of investing in stocks and bonds. (See "Market Timing: More Evidence Why It Doesn't Work.")

Take a look at every recession we’ve been able to measure. How did the stock market respond? What can we learn from the past that is predictive of this moment? The answer is almost nothing.  

I heard an old Norm Macdonald joke once that went something like this:

An optimist looks at the glass as half full. A pessimist looks at the glass as half empty. I’m a pessimist and I look at the glass as half full…but I might have bowel cancer.

I am a glass-is-half-full guy but tend to lean optimistic unlike Norm. Just think about all that we’ve accomplished as a species.

Charlie Munger, who worked alongside Warren Buffett at Berkshire Hathaway for decades, died Nov. 28, 2023, at age 99, a little more than a month shy of his 100th birthday. Munger enlightened many investors about the value of practical, fundamentals-based investing—and he did so with a wry humor that will sorely be missed.

It’s easy for me to make a list of ideas from Warren Buffett and his partner Charlie Munger at Berkshire Hathaway that have influenced my own thinking and that of my fellow Buffett-heads here at Morningstar. The hard thing is confining the list to only 12. But here goes.

Recent retirees haven’t had an easy time of it lately. When stock and bond prices both plummeted in 2022, many retirees saw big dents in their portfolio values; a typical portfolio made up of 50% stocks and 50% bonds would have lost about 16% for the year. While market conditions have improved a bit in 2023, balanced portfolios have yet to win back all of their 2022 losses as of Oct. 31, 2023. Making matters worse, higher inflation has forced many retirees to take bigger withdrawals as their portfolio values have shrunk.

Compounding is one of the most powerful forces in the world. Just ask Albert Einstein, who’s said to have called it the “eighth wonder.” The seemingly small decisions we make every day gain power over time. That’s why it’s important to take the long view and come up with a plan—in both wellness and investing—that creates momentum in the direction of our goals. Don’t squander the power of time when you can recruit it to work in your favor.

Learning to live with the ups and downs of the stock markets is an essential part of becoming a successful investor. Of course, it’s not always easy to keep anxiety at bay. That’s why, in this video, the investment journalist MOIRA O’NEILL explains how investors can keep a rational mindset through volatile markets.

“More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other to total extinction. Let us pray we have the wisdom to choose.” – Woody Allen

The ‘news’ as presented to us has always had a negative bent, but one could be forgiven for thinking that it’s become even more negative with constant stories of disasters, conflict, wrongdoing, grievance and loss. This was an issue prior to coronavirus – with trade wars, social polarisation, tensions with China, worries about job loss from automation and ever-present predictions of a new financial crisis. Since the pandemic higher public debt, inflation, geopolitical tensions and rising alarm about climate change have added to the worries.

We started Dimensional in 1981 around a set of beliefs.1 These ideas remain core to our business and key to the experience we deliver.

1. Investing Is a Science

Professional money managers have offered their services for centuries, but until the 1960s, there was no empirical way to hold them accountable for their results. When computers became powerful enough to analyze immense amounts of data, researchers could start gathering and learning from historical stock returns. Now economists could measure the success of different investment strategies compared with the performance of the broader market. The science of finance took off.

Like many retirees, Henry Flagler decided to spend his later years on the sunny beaches of Florida.

However, Flagler wasn’t there to relax and drink Pina Coladas. No, the former oil tycoon was there to build up the coastlines, railroads, and cities before Florida was even a destination.

Flagler was a partner of John Rockefeller’s at Standard Oil. By the time he retired, he had made enough money to last multiple lifetimes.

No matter how familiar we are with investing, we’ve all navigated uncertainty, weighed risks and rewards, and made carefully considered tradeoff decisions. Just by being human, we’ve been compelled to tackle the central challenges of life—which also happen to be the central challenges of investing.

At Dimensional, we believe that having a good investment experience is about more than returns. What matters just as much is how someone feels along their financial journey. And that’s really what the investment business should be about: helping people live better, more fulfilling lives.

Kerala is a coastal state in India with a large fishing industry.

Beginning in 1997, mobile phones were introduced to the region. By 2001 more than 60% of the fishers and traders were using phones to coordinate sales and set prices for the fish.

Robert Jensen used data from this market in a research paper called The Digital Provide to show how the addition of more information impacted fish prices in the marketplace.

One of the most important, but difficult, aspects of long-term investing is learning to not let day-to-day market chatter and scaremongering media headlines affect your long-term strategies. Although I keep a close eye on financial markets daily (mainly to respond to a daily email inbox full of panicking punters), I look at my own long-term portfolio only once or twice per year, typically during the January break, and at financial year-end.

One of the hard parts about trying to focus on the long-term as an investor is the short-term toys with your emotions.

In years like 2022 when everything is going down, you’ll always wish you would’ve taken less risk.

In years like 2023 when everything is going up, you’ll always wish you would’ve taken more risk.

Long-term returns are the only ones that matter but you have to get through a series of short-term emotions to get there.

Short-run returns can play tricks on you.