Investing is the art of understanding your financial position and the science of multiplying your money to generate wealth. With a variety of investment assets available, it becomes crucial to understand the importance of long-term investing. The financial crisis of late 2008 and early 2009 witnessed stock prices drop nearly by 50%. Many people thought to exit the markets for safety from further losses. But a Fidelity study earmarks that most successful investors stayed invested in the stock market during that time and were far better off than those who headed for the side-lines.
For most people being successful as an investor means reaching their financial goals. They fail to categorise their investments or their financial goals on and short-term and long-term basis. This mindset is what differentiates a regular investor from the most successful investors around the world. Your mindset is dictated by a string of habits that you develop unconsciously over your lifetime. But when it comes to investing, you have to be conscious of the practices you inculcate in order to become a successful investor.
You need not be and financial expert to invest your money in a meaningful manner. Numerous studies have shown that individual investors who think logically rather than acting emotionally or invest on a long-term basis rather than meeting unnecessary short-term goals have always shown a belief in their decision making and a commitment towards their regular and timely contributions. Therefore, to succeed as an investor, you may need to change your financial habits.
In this article, we have laid down four indispensable financial habits that have been witnessed amongst the most successful investors over the years. This might prove to be difficult in the beginning, but that’s how a new step starts. Slowly it will become a part of your daily routine. Therefore, it is upon you to make them work for you to achieve long-term financial success.
Have an investment plan
Whether it’s about a family function or retirement, successful investors always have a blueprint to accomplish their financial goals. This plan clearly defines their goals and practical, measurable steps to achieve them. It is regularly reviewed and re-assessed as per the changing market situations. Professional guidance with regard to the same helps you in researching better and allocating your funds in an ideal mix of assets – stocks, bonds, and cash savings. Using different models, you can calculate your average rate of return and adjust your investments accordingly as per your portfolio’s performance. As per the study, most successful investors start with a long-term vision, leaving appropriate space for short-term goals that follows.
Stick to your plan, despite volatility
It is human nature to move towards security. Whenever the value of an investment falls, ideally the investors tend to take their money out of the markets. A study shows that the best investors around the world don’t do the same. Instead, they rebalance their portfolio and maintain an allocation to different stocks accordingly. From June 2008 to December 2017, people who stayed informed and followed their plan saw their investments grow by approximately 147%. Had they taken out their money during the financial crisis, they would have suffered losses. Don’t get anxious when the stock market drops. Rather deal with the same calmly and stick to your long-term investment plan to achieve your goals.
Savvy investors are well informed about the market conditions, thereby keeping their expectations realistic. “Never invest in a business you cannot understand.” Most successful investors are not experts with every stock that they hold. They educate themselves about the financial conditions, helping them to make informed decisions as per their expectations. At the same time, it becomes equally important for an investor to take calculated risks. Most people, even after having realistic expectations fail to avail the benefits of the stock market because they are not able to measure their risk appetite properly. Remember, risk and returns go hand in hand. In the expectations of brighter returns, do not end up taking a lot of risks.
Staying in the market and diversification
Some of the most successful investors prioritise long-term investing throughout their lives. Your start may be small, but it should be strategic, and you must be ready to invest on a regular basis. At the same time, it is crucial to bring in diversity in the assets you are holding. An appropriate investment mix not only provides you with risk control but also delivers huge growth potential if you stick with your plan through the ups and downs of the market. Diversification cannot guarantee you gains or a no loss situation. It simply provides you with a reasonable trade-off between your risk and return.
The Bottom Line
Entering into long-term investments is a habit. Focus on these four points to gain confidence and motivation to get the most out of your investments. Every small step, be it reading an educational article, is increasing your odds of being successful. With that being said, develop a little determination, resourcefulness, and the proper habits of investing. Markets can take you anywhere. You have to believe your decision-making ability and develop a logical coherence between different factors to turn out to be “The Next Best Investor.”