5 Lessons Investors MUST Learn To Build Wealth

So many people make the same investing mistakes over and over and over again. New and seasoned investors alike often fail to take the lessons the market teaches us and apply them to their actual financial plan. They end up either standing still or making mistakes that really cost them down the line. We want to make sure that you do not fall prey to these same traps and that you have a solid foundation under you as you build wealth.

Those lessons are what we’re going to tackle today, and I am so excited to share these with you. So let’s dive in.

The first lesson is a foundational rule of investing, and yet it’s something that scares off a lot of people. Markets are, by nature, unpredictable. Corrections and crashes are not flukes—they’re part of the normal ebb and flow of the world in which we live. Despite what financial media or maybe Wall Street might tell you, the truth is that the stock market doesn’t follow a clear, consistent script. In fact, the average intra-year market decline is actually around 14%. That means that on average, the market falls 14% from its high before recovering over the next year, despite the fact that the market has historically ended the year positive about 76% of the time.

So what does this mean for you? You should plan for it. Volatility is a normal, normal, normal part of investing. Say that again. Recognizing this means you’ll be better prepared when those dips and blips inevitably pop up. We like to say that a sound financial strategy should succeed before, during, and after times of market uncertainty.

The next lesson is one that is especially dangerous to new investors. If you’re new to the world of finance and you only take away one thing from this video, please, please know this: Are markets unpredictable? Yes. But that does not mean that investing is the same thing as gambling—at all.

Again, it’s true that all investments carry some degree of risk. No investment, no matter how safe it appears, is completely free from the possibility of loss. However, gambling and investing differ fundamentally in how these risks play out. Gambling is a zero-sum game. That means that every dollar won by one player is lost by another, and statistically, the house always comes out ahead over the long run. In fact, in regulated U.S. sportsbooks, less than 5% of bettors are profitable long-term. Gambling outcomes rely purely on chance, fixed odds, and random results with no underlying value. I want you to remember that word.

Investing, on the other hand, is fundamentally about ownership. When you invest, you’re purchasing real, tangible stakes in assets that create wealth. Historically, if you just look at the S&P 500, it’s returned on average a little over 10% annually. Your success as an investor doesn’t come from luck or blind chance. It stems from businesses or assets producing genuine economic value over time.

In short, gambling is outcome-driven—a desperate attempt at immediate wins. Investing is value-driven, based on ownership and thoughtful decision-making about the long-term potential of different assets.

And although it isn’t gambling, the next lesson of investing behavior that we’re going to talk about should be treated with the risk that it carries—and that risk is substantial. In fact, this lesson is something that even the most seasoned investors often get wrong.

Investors will see some gains in their portfolio. Maybe they’ve picked a few single stocks that were winners, that have done great, and they feel like they have the market completely figured out. And then what do they do? They try to time the market, which is a nearly impossible feat. Successfully timing the market would require perfection, not just once but two times: first when you decide to sell, and then again when you decide to buy back in. Even minor timing errors, like selling slightly too late or buying back in slightly too early, can dramatically reduce your overall returns.

Historical data clearly shows that even professional investors rarely succeed in timing both decisions correctly. High portfolio turnover—that’s a lot of buying and selling—has been found to decrease returns by 6% to 12% annually due to poor timing and also to transaction costs. The reality is stark: the risks of mistiming the market vastly outweigh the potential rewards of accidental correct guesses.

A more effective strategy is almost always to simply stay invested for the long term. Let time and compound growth handle your returns, rather than trying to outsmart short-term market fluctuations.

In addition to poor market timing, investors from top to bottom fall prey to this next mistake, and we could all learn a thing or two from what I’m about to share. Investors frequently chase last year’s winning asset class, hoping that history might repeat itself. But last year’s winners are just as likely to be this year’s losers, and Callan’s periodic table of investment returns illustrates exactly why this strategy backfires year after year.

This chart ranks asset classes based on their annual performance, clearly showing that no single investment consistently stays at the top. I mean, look at real estate for example. If we just trace the trajectory of it from year to year, it jumps from top to the bottom to the middle. It’s all over the place. And we could do the same for each and every asset class on that list. The lesson is clear: chasing recent winners is an unreliable strategy.

Instead, investors should consider maintaining a diversified portfolio across multiple asset classes, smoothing out volatility and avoiding the pitfalls of chasing fleeting performance trends.

Investors also mistakenly assume that great innovations automatically yield profitable investments, but history shows us otherwise. Great inventions don’t always make for great investments. Think about the dot-com bubble of the early 2000s. Groundbreaking internet technologies promised—and eventually did—deliver transformational change. Yet countless investors lost fortunes due to inflated valuations and speculative fervor that all came crashing down in a perfect storm.

Today’s artificial intelligence boom echoes the same scenario. While AI undoubtedly holds massive transformative potential, not every AI-focused company will deliver profitable returns. Innovations alone don’t guarantee profitable outcomes. Valuation, timing, and sustainable business models matter much more.

But what I’m about to say is crucial: virtually no one—and I mean virtually no one—knows which companies are going to make it through and be the successful ones on the other end. Investors would be wise to approach any market gold rush cautiously, recognizing that long-term success relies less on speculative trends and more on maintaining broadly diversified portfolios designed for stability, consistent growth, and resilience against different types of market hype and volatility.

We talked about a lot of things to avoid this episode. So what kind of investments do we like? Click here to find out, and always keep building towards your great big beautiful tomorrow.