- Defining who is a good investor is not as complicated as some may think
- Good investors have a plan and the knowledge to execute it
Many people think that what makes a good investor is a secret knowledge of the stock market, or extraordinary intelligence when it comes to picking stocks. How can a regular old person crack the code of the stock market?
Turns out, your name doesn’t have to be Warren Buffett for you to be a good investor. Investing doesn’t require super intelligence, nor is it limited to a certain type of person.
You don’t have to get a certificate in ‘How to be a good investor’ to make smart investing choices.
Is it difficult to stick with investment goals through market fluctuations? Absolutely.
But anyone can become a good investor if they take the time to understand what they’re investing in and why they’re investing.
What makes a good investor?
A good investor, for our purposes, is someone who understands what they’re investing in, is in control of their overall investing plan, and can consistently contribute to their portfolio over the years.
We’ve laid out simple steps to follow on the path to becoming a good investor.
Make a plan – This means setting a clear goal (investing for retirement or investing for your child’s college education), having a number you’re trying to reach, and setting a time horizon for each goal. If you start investing for your child’s college tuition when they’re five years old, your plan might be to invest for thirteen years with a goal of reaching $65,000 in funds.
Diversify – You don’t want all your eggs in one basket. Different asset classes (like stocks and bonds) will have different returns and risk factors. A mix of each may help limit extreme losses.
Maintain – Once you’ve set up a plan and have begun to execute it, make sure to do continued maintenance. There’s no need to check your accounts daily, but you may rebalance your portfolio periodically and adjust your allocations based on how your goals change. For example, as you get closer to retirement, you may want to have more of your portfolio in bonds, to reduce the volatility your portfolio faces. What works for 25-year-old you may not work for 65-year-old you.
Keep Learning – No one investor ever knows everything, including Warren Buffett. As our world changes, our markets change, so it’s important to keep educating yourself on your investment options, fees, and risks.
Try to time the market – Timing the market is a fool’s errand. Don’t waste your time waiting for the perfect moment to buy or sell. Many expert investors have tried and failed at that very thing. Understand that your returns will vary from day-to-day but investing is about time in the market, not timing the market.Make emotional decisions – If you see a drop in your portfolio, it can feel like a stomach punch. Take a deep breath, and remain calm. Markets fluctuate daily, and there will be periods where you feel less than confident in the markets. Remember that you have a plan and continue to stick to it.
The road to becoming a good investor.
You don’t need a trust fund to get started. Especially for new investors, it’s important to establish the habit of investing regularly, month after month. You can get started with Twine, and then build off of that throughout the months and years.
Good investors are not defined by the huge sums they have to invest, or the secret stocks they know to pick. They design an investing strategy that works for them, and they do their best to stick to it no matter what life brings their way.