How to Become a Better Investor
Being a better investor is not determined by portfolio size or by always investing in the latest “hot” stock. To become a better investor, you need an investment plan and the discipline to stick to that plan.
But there is more you can do. Our eight tips below will help you become a better investor.
1. Have an Investment Plan
You must develop an investment plan (an overall investment objective). Having a plan and staying with it even during volatile markets will help set you up for success.
2. Start Today
To obtain the greatest benefit of “compounding” (where income is reinvested and starts to make gains along with your initial investment) you need to start investing as soon as possible.
If you haven’t started yet – then start today. Saving and investing early and often is the best way to fulfill long-term financial objectives. The sooner you start, the greater you will benefit from the power of compounding!
3. Make Investing a Habit
Invest regularly – to benefit from Dollar-Cost-Averaging (DCA). DCA is the strategy that is used to reduce the influence of market volatility. You automatically invest a set amount of money at regular intervals regardless of market performance, adhering to Warren Buffett’s advice “Do not save what is left after spending but spend what is left after saving.”
Incidentally, this strategy results in buying more shares when the market is down and buying less shares when the market is up.
4. Diversify Your Investments (Mix it Up)
Spread your assets across a wide range of investments. Having your investments in a variety of asset classes such as equities, bonds, mortgages etc., will result in an investment portfolio with a higher return-to-risk profile. Some of the asset classes will have risk characteristics that offset each other.
Over the long-term, this is more beneficial and safer than having all your eggs in one basket – or all of your investments in one asset class.
5. Invest for the Long-Term
Have a long-term investment horizon for achieving your long-term objective. Remembering this will help you maintain focus on the long-term and not be influenced by short-term events. Better investors develop a long-term investment plan – and stick to it.
6. Don’t Let Emotions Affect Your Investing
Ignore the ups and downs of the market. Stocks go down faster than they go up, but history shows us they have always gone up more than they have gone down.
It is normal to get anxious when markets drop (or to become over exuberant in rising markets). Having an investment plan will help you focus on your long-term objectives and ignore shorter-term market movements.
7. Ignore the Noise
Don’t be influenced by the “Herd” or FOMO (Fear of Missing Out). Time in the market beats timing the market. Eugene Fama said “Your money is like a bar of soap. The more you handle it, the less you’ll have.”
Following the herd, panic trading and/or attempting to time investment market moves not only risks realizing losses when things move the wrong way, but it also costs you money by way of transaction fees, and possibly through tax consequences. It is better and less costly to stay the course.
8. Monitor and Rebalance
Having taken the time to establish a financial plan to achieve your long-term investment objectives, you must periodically ensure that you are still investing according to your plan.
As part of your plan, you should have set asset class and security weighting ranges. These must be monitored and then rebalanced if they have come offside owing to relative over or under performance. Your investment plan is only effective and on target if you maintain it.
Remember Your Plan and Stick to It
Most of the requirements for being a better investor are pretty simple. Invest early, keep reinvesting, stay diversified and focus on the long-term. Above all, begin by making an investment plan – and then stick to it!
Investing with Bloom Investment Counsel, Inc.
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For more than 25 years, we have specialized in one thing and strive to be the best at it—investing in income-generating investments, specifically dividend-paying stocks, which can help you generate income, if needed, and growth from investing in the stock market.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.