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Six investing lessons I learned from the past 60 years

  • Beware the 'spirits.'
  • Focus on savings, not returns.
  • You can't time the market.

Like a lot of baby boomers, I've just turned 60. I've seen four recessions, several market sell-offs and one near depression. I'm also saving for retirement while trying to fund two college educations for my daughters.

John Wasik in his office.
Source: John Wasik
John Wasik in his office.

I've learned much over the years from some of the greatest investors and economists on the planet, so I'm really fortunate. Here are the highlights:

Beware the 'animal spirits'

The markets are often more animated by "animal spirits" than earnings and dividends. I learned this, from all people, the great economist John Maynard Keynes, whose portfolios I drilled down into in the Cambridge University library while researching my book Keynes's Way to Wealth.

Keynes, despite his demonization by some, was one of the greatest investors of all time, making millions between World War I and the end of World War II.

"It's nearly impossible to know the best time to buy and sell. More often than not, you'll get burned."

Keynes pioneered early forms of value stock picking and behavioral finance. He found that expectation and emotion are two powerful drivers of bubbles and crashes. If you keep that in mind, you can avoid loading up on single stocks or funds at the wrong time.

Avoid the market timing temptation

As I've learned from loading up on tech stocks in 1997-99, you think you're on top of the curve, when in fact you're investing at the crest of the market. We can't know enough by looking at the upward momentum of earnings, technical analysis and stock prices. Joseph Stiglitz, a Nobel prize winner in economics, has often warned about "information asymmetry."

Some investors know more than others (often with inside information) and can trade at lightning speed with algorithms that can anticipate and exploit market swings. You don't stand a chance against the robots. It's nearly impossible to know the best time to buy and sell. More often than not, you'll get burned.

I have interviewed Nobel Prize winner Robert Shiller several times, who authored the classic Irrational Exuberance. In doing so, I also discovered that "narrative economics" – the contemporary popular belief about market behavior -- can often mislead us. So ignore the "story" about stocks or why the market is up or down. Invest for the long term and ignore the noise.

The market is nearly impossible to beat

After hearing University of Chicago Nobelist Eugene Fama, the father of the Efficient Market Theory, speak several times, I'm convinced that I will never have more knowledge than the market as a whole. And if I invested with a winning manager? It's unlikely he or she could continue the streak, or that the performance was due to anything but luck in Fama's view, which is supported by decades of research.

So how could I ever compete with Warren Buffett, institutions, hedge funds hiring math PhDs to write trading programs, and high-frequency trading houses?

I can't, so I hold on to a well-diversified, risk-adjusted portfolio and check it once a year.

Cost matters

I learned this from Vanguard's Jack Bogle, whom I've interviewed and quoted countless times over the years. The father of the index mutual fund's mantra is "cost matters." The lower the cost of managing money—the less you pay middlemen—the more you can sock away over time.

Why pay 1 percent when you can pay 0.10 percent (or less) annually for a fund that holds most major global stocks? That's why I invest in ultra-low cost index funds though Fidelity, iShares (Blackrock), SPDRs (State Street), Schwab and Vanguard. Math matters. You can't beat the arithmetic of saving more by paying middlemen less.

Panic is not protection

Our portfolio really got slammed after the 2008 crash, and was initially down 40 percent on paper. But we didn't pull out. My wife suggested that being 80 percent in stocks posed too much risk for us, so we later re-balanced that to about half bonds/half stocks.

That was our gut check, and offered a better risk profile for our ages. Since then, we've done nothing but hold and reinvest our dividends and gains in new shares.

As a result, we've tripled our money over the past decade: One-third of the gains were investment returns. Compound interest works in a big way.

Focus on savings, not returns

After digesting the writing of Burton Malkiel (A Random Walk Down Wall Street), I saw the folly of trying to beat the market. So I stopped trying and just hope to outpace the rate of inflation (running around 2 percent ), which I've more than succeeded at doing.

Save more, fret less! Max out your 401(k) or other savings. You can save up to $18,000 in 2017 in a 401(k); another $6,000 if you're over 50. At the bare minimum, take your employer's matching contribution, if they offer one. It's free money.

My investing objective is incredibly simple: To worry less about money and be able to reap the best investment of all: More personal time to enjoy life, spend time with the ones I love, and do things that make me feel most alive. To me, that's the ultimate purpose of saving and investing.

(John Wasik is a journalist, speaker and the author of 17 books, including Lightning Strikes and Keynes's Way to Wealth. He has contributed to The New York Times, Reuters, and other publications.)