Ten habits of successful investors
1) They have a plan – investment isn’t gambling, and successful investors don’t manage their portfolios based on the latest hot tip. They examine whether they want income or growth, set out how long they have to invest and how much risk they are prepared to take. This discipline ensures they are not over-influenced by market noise.
2) They listen to the right people – the only people you should listen to are those with a demonstrable track record of making money in stock markets. This applies to both your advisers and to your friends.
3) They look long-term – In the short-term markets are irrational and will blow about with every statement from the Federal Reserve or Chairman of Tesco. Investors need to look beyond this day to day noise and invest for the long term.
4) They don’t pay too much – Investors are prone to buying when markets are high and everything looks rosy. The best time to buy is usually exactly the opposite – when markets are week and the world looks awful. The price you pay is often the most important factor in whether you make a good long-term return on your investments. Do not follow everyone else into a popular stock: the chances are it will be very expensive.
5) They don’t put all their cash in at once – Where possible, regular contributions are a good way to even out the price of investments. This should deliver a smoother return over time, allowing investors to ride out the highs and lows of the market.
6) They diversify – they may believe that Whizzo technology is going to return 100x their original investment, but they don’t bet their house on it. Keeping a spread of investments will deliver a smoother return.
7) They pay attention to costs – Cheap investments are not always good and expensive investments are not always bad, but investors should factor costs into their decision-making because they can act as a drag on overall returns.
8) They keep it simple – even the great Warren Buffet admits that there are some businesses he simply doesn’t understand. He doesn’t invest and nor should you.
9) They keep a cool head – Economies rise and fall, companies go through bad times. Mostly, it works out OK in the end. Those with the patience to ride out the rough patches will usually reap the rewards. That said….
10) ….They allow some flexibility – You won’t always be right. The most skilled investors in the world aren’t always right. Keep that in mind, and allow yourself some margin for error.