The Secret to Being a Successful Investor is Way Simpler Than You Think
Think about the last time you dealt with a sticky situation. Perhaps it was a conflict with a parent, or a disagreement with a friend. Could the argument be better resolved, or avoided entirely, had you a deeper understanding of what it was that ‘triggered’ you? Same rules apply when it comes to investing. If you don’t know what kind of investor you are, you’ll never know how to deal with the issue when (or if) turbulent times do arise.
Read on to find out what type of investor you are, and what the secret to successful investing really is.
Unsurprisingly, your personality type corresponds to the type of investor you are (or likely to be). If you’re anxious and a worrier by nature, you'll be less likely to be able to stomach market fluctuations in the long-run. If, however, you’ve got a strong nerve, you’ll be better placed to stay in the game for the long run. While this doesn’t allow for much nuance, it gives a good indication of how you’ll deal with tumultuous times in the market.
A simple way to determine what type of investor you are is to answer this question: If you look at your investments six months’ down the line, and find that they’re 10% less than they were six months before, would you sell everything right away? Would you, while nervous, continue to monitor their performance? Or, perhaps, you wouldn’t bat an eye, and would invest more money because you see an opportunity?
This quick quiz has a series of other helpful questions, and your answers give a good indication of how much risk you can handle. And while it’s better to be a cautious, risk-averse investor than not invest at all, you should know that bigger investment gains come with some risk.
You might think that the most successful investors have a secret to beating the market, or ludicrous amounts of money, but the truth is they simply have a temperament better suited for investment. Warren Buffett, the billionaire-investor-extraordinaire, was right when he said, "Success in investing doesn't correlate with I.Q. ... what you need is the temperament to control the urges that get other people into trouble in investing."
It goes without saying that if you’re just not the type to handle high levels of risk, changing your temperament is no easy feat. But don’t let that get in the way of your investment planning. If you’re too worried about making a loss, try minimizing your risk by including more conservative items in your investment account, like treasuries or money market funds. On the other hand, a more adventurous portfolio will include growth and value stocks. If you’re new to investing, it’s worth seeking professional advice to help get you started.
Keep in mind that simply determining how much risk you’re willing to take isn’t enough. You also need to have clear goals, and identify what type of return you want to generate from your investments. Once you have all this in place, you’ll be in a position to create an investment plan that is best suited to your personality and goals.
Photo from Giphy.