Here are the Five Key Traits of the Most Successful Investors
What defines a successful investor? Successful and extraordinary investors such as Warren Buffet and Rakesh Jhunjhunwala display critical character traits that have set them apart from the pack. To be successful in your investments may have little to do with intelligence and almost everything to do with your mindset. Let's look at the pivotal character traits you need to become a successful investor.
Patience is key
According to Warren Buffet's business partner, Charlie Munger, "waiting helps you as an investor, but several people cannot wait." Being a patient investor is not easy, as Munger points out in his quote. But as Buffet and Munger have discovered, your only friend in equity investments is the magic of compounding when investing.
Compounding is a process where the earnings from your asset, either through capital gains or interest, are reinvested to help you generate more revenues over a long period of time. To become successful in accumulating wealth, you need to allow compounding to work in your favour. You need to be optimistic about the future and give your investments several years to grow for compounding to work on it. The power of compounding can be your road to wealth, and it is easy to benefit from it. All you need is patience to see you through and the mindset to stay calm despite volatility.
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Accept uncertainty as part of the equation
Let's assume you have a financial plan for your money. While having a plan is essential, planning on your plan, not going according to the plan is something you need to accept. That means, while preparation is a fruitful exercise, you need to accept that an unpredictable future is possible. Working with a trusted advisor can help you encounter the inevitable bumps that come your way and find ways to surmount them in order to stay on track.
Control risk through diversification
A fundamental foundation of successful investment is to own a wide range of stocks, bonds and other securities that can help you control risk. This foundation, also known as diversification, means to have an appropriate investment mix. A diversified portfolio may offer the likelihood of delivering growth potential with the level of risk that addresses your situation. Besides, it also makes it easier for you to stick with your financial plan throughout market volatility. It's not just enough to know the best stocks to invest in or the best stock markets to invest in. You need a well-diversified portfolio that balances one set of assets with another not related to it. However, while diversification cannot guarantee gains or that you will never experience a loss, it offers you a reasonable trade-off between risk and reward.
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Look into a balanced risk and reward trade-off
Successful investors are not obsessed over possible volatility that may take place anytime in the near future. They do not allow emotions to paralyze their portfolios or prevent them from investing altogether. As a successful investor, avoid focusing on risk excessively. Accept risk and only take the amount and kind of risk you can assume based on your situation, financial goals and time horizon. Adjust your mindset and financial behaviour to accept risk and reward trade-offs. Doing this can allow you to stay ahead of your game and enable you to live through market and price swings rather than avoiding them.
Tweak your investor mindset
Perhaps your outlook towards investments requires modification. For instance, if you're unable to relate to the character traits mentioned above, you need to develop the right investor mindset to become a successful investor.
Do not allow fear or the lack of confidence to impact or affect your investment decisions. Your trusted financial advisor can be your critical guide in showing you the importance of letting compounding work its magic on your money. Resolve to be patient for the majority of your investment timeframe. Recent months and the past year have displayed how crucial it is for every investor to build a healthy tolerance towards uncertainty. View volatility as an opportunity and look at how to take advantage of it rather than fear it.
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The ultimate test of character is investing. And unless you begin investing, how would you know where you stand as a successful investor? With the help of an innovative financial plan and reasonable investment choices, you can use the above vital traits to lead you to investment success. Schedule some time with a financial expert or advisor to determine your investor readiness and join the community of successful investors with a portfolio based on your needs.
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