Ramit Sethi's first scholarship check was $2,000 — he put it in the stock market and lost half right away. The 'simple' lesson he learned

There was just one problem. He didn’t really know what he was doing.

“I lost half my money within a matter of months,” Sethi said in an interview with Mainstreet. “I was just putting it in whatever company I thought was going up and down a lot.”

For a college student, that was an expensive price to pay for an investing mistake. But here’s what he learned from it.

Simpler than it seems

Losing half of that $2,000 could have been enough to scare Sethi away from the stock market. Instead, it made him want to understand what he had gotten wrong.

It became the drive to learn more about personal finance and investing before risking all his money, and what surprised him was how much simpler it was than the first time.

“I didn’t realize investing is much more than just picking whatever company you think is cool and then putting a bunch of money in it,’ Sethi said.

His early mistake is a familiar one. New investors can easily mistake activity for strategy, chasing stocks that are moving quickly or getting attention rather than thinking about what their money could do over the long term.

“Instead of treating financial markets as long-term compounding machines, inexperienced investors treat them like lottery tickets,” Jonathan Carcone, principal of 4 Brothers Buy Houses, told Moneywise. “They are swept up by the positive buzz created by other investors and buy a stock at an all-time high only to dump it at the first decline.”

That long-term approach is something Sethi has emphasized himself. In a 2024 interview with Moneywise, he called compound interest a “secret weapon,” recalling that he started investing around age 14 and watched even small amounts grow over time.

“The power of compounding is something that is truly hard to understand until you see it over and over again,” Sethi told Moneywise. “And then it’s pure magic.”

Managing your own money

Sethi takes a similarly big-picture approach to managing finances. When people decide they need to save more, he said, they often immediately start looking for small things to cut, the takeout coffee, the diet soda or some other everyday indulgence.

“You can’t out-frugal your way to being rich,” he said.

Instead, Sethi would rather see someone make meaningful cuts in the categories where they’re actually spending the most. Cutting restaurant spending by 20%, for example, or spending 35% less at bars could have a much bigger impact than agonizing over a few dollars here and there.

“Ask the $30,000 questions. Get those right. And you will never have to worry about the price of coffee again,” Sethi told Moneywise.

For Sethi, those bigger questions include how much you’re saving and investing, where that money is invested and, for couples, whether both partners are on the same page financially. As he put it during the interview, if those fundamentals are taken care of, “we can get the coffee. It’s not a problem.”

Keep it simple

For first-time investors, it can be tempting to put your money into something that seems like it’s taking off. But big gains can sometimes be followed by big losses.