8 Brutally Honest Money Truths Nobody Wants to Hear

Every investor wants to be the next Warren Buffett. It’s understandable — who doesn’t want to follow in the footsteps of the Oracle of Omaha and make big money in the stock market?

But if you can’t face up to a few brutally honest investing truths, you’re unlikely to successfully build wealth. These harsh truths can be hard to hear, but once you take them to heart, you’re in a much better spot to make money on your investments.

Following are eight crucial stock market truths. How well you follow these pieces of advice can make or break your investing experience.

Every once in a while — as with the Reddit-based GameStock stock surge in 2021 — the stock market turns a handful of people into millionaires overnight. But these “rags to riches” stories are definitely the exception and not the rule when it comes to investing.

The best investment strategy isn’t to cross your fingers and hope for a random spike in stock prices. Instead, your odds of success are much higher if you make careful decisions about where to invest.

Then, it’s time to be patient. Sit back and relax in the hope that your investments will generate years — or, even better, decades — of compounding returns.

Just remember that successfully building wealth in this manner requires a commitment to being as patient as possible.

This year’s stock market performance is another reminder that investing in equities is inherently volatile and unpredictable.

Nobody knows what the stock market will do tomorrow, regardless of the endless stream of pundit predictions that you see on TV and across the internet.

Yes, you can scroll social media or follow stock market forecasts in hopes of timing your investments exactly right and scoring the biggest possible return. But research has shown that the odds of successfully timing the market are slim.

You are better off investing regularly over long periods of time and simply waiting for the stock market to deliver strong returns as the economy grows over time.

Stock prices fluctuate minute to minute, hour to hour, and month to month. Watching the stock market obsessively in hopes of getting nonstop, real-time updates may make you feel like you are in control of your investments.

But in truth, it’s more likely to keep you from seeing the bigger picture. It may even encourage you to make snap-second investment decisions rather than to act rationally based on longer-term trends.

You don’t actually need to watch the market closely to make a fortune. Investing in index funds — which passively track a stock market index — and letting the stock market do its thing for years and decades has turned countless humble investors into millionaires.

Social media is generally one of the worst places to get good, trustworthy investment advice.

To take just one example, people who brag about their gains on social media rarely post about their losses. That means social media can give you a skewed perspective on how good or bad a certain investment might be.

Remember, when you hear just part of the story, you don’t have all the facts you need to make an informed decision. In fact, it increases your odds of making disastrous decisions based on incomplete data.

Buffett hit millionaire status by the time he was 30, but that doesn’t mean his success happened overnight. Quite the opposite, in fact.

Buffett started investing at the age of 10, meaning his investments had a lot of time to grow. There is no doubt that the Oracle of Omaha is a shrewd stock picker. But it is a long period of compounding interest that really built Buffett’s wealth.

So, while reading news stories about investors who get rich quickly through crypto investments can be fun, the odds are against you successfully doing the same. You’re much more likely to get rich slowly — the way Buffett did — than all at once.

Pro tip: If your income is barely big enough to make ends meet, consider getting a part-time job or starting a side hustle. Doing so can help you generate extra income that you can invest in the stock market, providing the fuel you need to build wealth over time.

Some traders claim that the best way to make money in the stock market is to closely follow market trends. That way, you can buy and sell based on whichever direction the investing winds are blowing.

However, two decades of academic research have shown that those who trade most often tend to have the worst results over time.

Once again, we turn to the wisdom of Buffett, who has famously said that his favorite holding period for a good stock is “forever.” He regularly counsels other investors not to panic and sell when the market takes a dip.

As Buffett has said, "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."

If you keep losing money on your investments, you might be buying and selling stocks at precisely the wrong time.

There is an old Wall Street adage: “Buy low, sell high.” But research shows that many people do just the opposite. When markets dip, they feel fearful and decide to sell. Then, they don’t buy again until markets are soaring.

Unfortunately, such an emotion-based approach is not likely to lead to success.

For example, when market returns are great — and investors are most optimistic — it often means a downturn is around the corner.

The last two years illustrate this concept perfectly. In 2021, the Standard & Poor’s 500 index rose more than 28%. An excited investor might have poured money into the market in January of this year in expectation that the good times would continue.

Instead, the S&P; has spent much of this year crashing down to earth.

Unsure about when you should buy and sell? Consider talking to a financial advisor who can give you guidance.

The famed investor Peter Lynch once said, “The key organ in your body in the stock market is your stomach — it's not the brain.”

When you invest in stocks, you will have good years and bad years. And some of those bad years will be stomach-turning terrible.

Over time, you very likely will build wealth if you remain invested. But you must be realistic about your expectations. The road to riches is not a straight path. You will encounter twists and turns, and fits and starts.

Remember, the goal of investing is not to eclipse Buffett’s wealth. Instead, you are trying to build a nest egg big enough for a comfortable retirement — no more, no less. Keep your eye on the prize and try to enjoy the journey, even if it is a little bumpy from time to time.

Investing is all about growing your wealth steadily over decades. You’re much more likely to retire comfortably if you face up to the financial truths of your situation, no matter how hard or uncomfortable it is to do so.

Dealing with financial realities head-on will help you formulate a much more realistic plan for using the stock market to make money so you can retire early or achieve any other important financial goal.