Want to make your money work for you? Investing is your answer. Here are a few habits of successful investors that can help you build your wealth.
Want to make your money work for you and build your wealth? Investing is your answer. Although not all investors become billionaires like Warren Buffet, you can definitely achieve decent results and set yourself up for a peaceful financial future by making the right Investments.
Keep in mind that the chances of becoming rich overnight are quite slim. It takes a lot of patience and smart investing to accumulate a lot of wealth. It is imperative that you learn as much as you can about the nuances of investing before you do anything rash with your money.
Failure shouldn’t get to you either. Let’s say you and a friend started investing at the same time, but you haven’t been as successful as him or her. That’s absolutely okay. Just keep the bigger picture in mind, because you never know what the future has planned for you. So, don’t give up just because your first attempt was a failure. Learn from your mistakes and keep investing.
Along with constant learning and a never-give-up attitude, you need to put yourself in the shoes of successful investors and start to think like them. To help you with this, we’ve listed down some of the habits and methods that successful investors follow while investing.
Additional Reading: Investments For Young Professionals
Research
Before investing, you need to understand the basics. You need to be well aware of the different investment options out there and how they function. This will help you make well-informed decisions when you start investing your money.
There are a lot of studies about investments and the different investment products available online. You can also expand your knowledge by keeping track of financial websites and TV channels. Sounds easy, right? After all, knowledge is power.
Additional Reading: Simple Rules In Investments!
Ask for advice
Don’t be shy! Even the best investors have consulted experts to help them better understand the market and plan strategies for them.
As we mentioned before, you can expand your knowledge about investments by reading blogs and financial newspapers, going through financial websites, watching finance channels and even reading books on finance. However, consulting a financial expert can certainly be of great benefit to you.
Even though you may have to spend a fair amount, financial advisors can give you solid, real-life advice. Thanks to their experience and their inside-out knowledge about the market, they will be able to clear all your doubts and help you build a balanced portfolio based on your risk appetite.
Additional Reading: How To Manage Your Portfolio
Diversification
The most successful investors know that diversification is of vital importance when it comes to investments.
You’ve probably heard of terms like ‘asset allocation’, ‘diversification’ and ‘risk appetite’. These are very important concepts when it comes to investments. You need to have a diversification strategy in place before you start investing. Basically, you need to plan ahead how much money you will be putting in each investment class. Then, you need to diversify your investments across the different classes to increase your success rate, while reducing the risks at the same time.
When investing, it is advisable to avoid putting all your eggs in one basket. On the flip side, it isn’t particularly wise to put your eggs in too many baskets as well. Over-diversification of your portfolio can obstruct your investments as much as not diversifying your portfolio.
Your knowledge and analytical prowess play a major part in coming up with a fool-proof investment strategy. The more you know about the market, products, and options available to you, the better decisions and strategies you will be able to make. So, do your homework before investing.
Additional Reading: Diversifying Your Portfolio – Is It Worth It?
Consider stocks as a business
In general, most investors don’t pay too much attention to stocks. However, according to Warren Buffet, stockholders should consider themselves ‘part owners’ in the business they are investing in. With this kind of mindset, investors will be able to avoid making unprepared and unplanned investment decisions. Instead, they will place more focus on long-term results, thereby putting in a great deal of analysis and thought before making any buying or selling decisions. This also leads to potentially better returns from their investments.
Additional Reading: The Stock Market And You!
Reduce Active Trading
Successful investors would advise you to reduce your portfolio turnover. If you’re wondering what a portfolio turnover is, it refers to active trading or the frequent buying and selling of stocks by an investor. Though active trading can fetch investors a lot of money, they also jeopardise their returns at the same time. Confused? Well, the reason why a portfolio turnover can hamper your investment returns is the increase in taxes to be paid on capital gains as well as an increase in the yearly commission amount.
This is why all successful investors always stress on adopting a long-term mentality when it comes to investments. With long-term investments, you can keep the huge commission fees and taxes applied on short-term gains at arm’s length. Investing for a longer term also keeps your money safe from short-term market fluctuations and allows for increased returns over time.
Additional Reading: Tax-Saving Investments To Grow Your Wealth
Investor’s Psychology
There is a certain psychological mindset that every successful investor maintains. This involves a rational approach to decision-making by considering probabilities, economic issues, and market conditions. They also don’t allow their emotions to cloud their judgements. If you’re new to investing and want to invest like a pro, then you have to implement this mindset.
Also, don’t depend on market forecasts too much. Most successful investors tend to rely more on their own research and instincts than on future predictions. Don’t let market downfalls or upswings affect your investment decisions.
Additional Reading: Do Not Have Market-Related Inhibitions
Long-term mindset
Most successful investors are patient with their investments. When it comes to investing, think long-term. Short-term thinking often leads to terrible decisions and loss of money. Short-term investments aren’t very fruitful either due to market volatility and inflation.
Also, due to market ups and downs, some funds don’t perform well in the short term. Most people tend to sell their stocks during this time because of the fear of losing all their money. But, what they don’t realise is that they’re already losing money. This is exactly why, whenever we talk about investments, we always stress on investing for the long term.
Additional Reading: Here Are Various Options For Long-Term Investments
Learn from past mistakes
Every successful investor out there will tell you that they learnt a lot from their previous mistakes. To err is human after all. Instead of making you more apprehensive about investing, your mistakes should motivate you to do better the next time.
This applies to investments as well. You can never become a successful investor without making and eventually learning from mistakes, miscalculations, and wrong decisions. It will certainly allow you to make smarter and more disciplined decisions in the future.
Additional Reading: 5 Common Mistakes Small Investors Make
Plan for rough days
For most successful investors, planning for ‘rough weather’ takes top position. Emergencies or tragedies can come unannounced. What if you become critically ill or lose your job? You still have to care for your family, don’t you? This is exactly why it is important to have a contingency fund in place, which should ideally be equivalent to six months of expenses for your family. In addition to building an emergency fund, investing in Life and Health Insurance should definitely be among your priorities.
Additional Reading: How To Build An Emergency Fund
Stick to the trend
This is a very important rule when investing in stocks. Don’t go against the trend. If a stock is performing poorly, then don’t buy it. Remember that you are investing, not gambling. Instead, keep an eye on poorly-performing stocks to see if they settle over time. If you notice that they show signs of improvement, then you could consider investing in them.
If you want to cut your losses at an early stage, you should assign an exit strategy for each of your investments. A ‘trailing stop’ is your solution. A trailing stop refers to an order given by the investor to either buy or sell a stock if it stops performing favourably. It provides the investor with greater flexibility to profit and limit their losses.
Additional Reading: Value Investing
There you have it. All you need to do to become a successful investor is to adopt these simple habits. Good luck!
Tip – If you want some valuable lessons about investing like a pro, you should consider reading ‘The Warren Buffet Portfolio’.