As everyone knows, investing in stocks or bonds can be highly profitable, but it can also be risky. If you aren’t careful, you can lose all of your money in one bad investment decision.
So how do you know when you are doing something right? The answer to that question lies in your approach to the process of analyzing and selecting stocks or bonds to buy and sell and how careful you are about following it.
By understanding the five excellent characteristics of a successful investor and the five common pitfalls that cause many investors to lose money, you will greatly increase your chances of success in this game of high-stakes gambling.
Any investor is only as good as his or her worst investments. A broad portfolio can minimize risk by spreading your money across several different types of assets and industries. This way, if one asset class or industry isn’t performing well, you have others to fall back on.
The first and most important characteristic is patience. If you are truly going to be successful as an investor, you have to be willing to sit on your hands for months or even years waiting for that perfect investment opportunity.
That might sound like torture, but as Warren Buffett says: To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information.
Understanding your risk profile
One of your most important considerations as an investor is your risk profile. This is simply how much risk you’re willing to accept and/or can tolerate. If you’re really new to investing, don’t be discouraged by all these big words.
Keep it simple: What are you saving for, and when do you need it? Are there any health or family issues that could put a strain on your finances?
A steady plan for success
The best way to ensure that you’ll be able to meet your investment goals is by having a financial plan. As an example, if you expect to rely on Social Security income after retirement, chances are you won’t want to tie up too much of your money in stock investments.
Investing in yourself
This is an investment in your future. It pays off slowly, it may not feel like you’re achieving anything, but it sets you up for greater opportunities in your professional life. It will also make you more marketable and able to command a higher salary.
You can choose to invest in skills such as learning new technologies or language skills. You can do work experience which sets you up for either more autonomy or higher pay down the line if it leads to promotion.