Investing is a process that requires continuous work and ongoing study. Good investors must constantly work to improve themselves and increase their knowledge. In this article, we will explore 10 ways to become a better investor and learn how to achieve that.
Turn off the news and watch more Star Trek
We can learn a lot from watching Spock in Star Trek, where he makes logical decisions under great pressure. In the past, old economic theory believed that humans make logical decisions that lead to maximum wealth. However, modern behavioral finance theory tells us otherwise. So, to become a better investor, study financial behavior and watch more Star Trek.
Treat your money like it’s soap
Eugene Fama, the renowned finance academic, says, “Your money is like soap; the more you handle it, the less you have.” Moving money involves transaction costs and sometimes tax consequences, and often you may move it at the wrong time. Research indicates that average investors perform worse than the market mainly due to their poor timing abilities. To outperform the average investor, when you move money, it should be part of a good investment plan, not a random last-minute reaction.
Learn the term “dollar-cost averaging”
Dollar-cost averaging is a strategy used to minimize market risks by regularly investing a fixed amount of money. This strategy forces you to buy more shares when the market is down and buy less when the market is up. Smart savers feed their saving plans and allow them to work for many years. Be a smart saver, and if you’re not already, start applying the dollar-cost averaging strategy.
If you can’t handle the pressure, avoid investing in stocks
Stocks are not suitable for everyone. You can build a solid financial plan using only safe and guaranteed investments. If you don’t understand the stock market or what a mutual fund is, it’s best to avoid these investments altogether until you learn more. If you do understand but feel very anxious, stay away from the market.
Read the story of the tortoise and the hare
Your colleague may have doubled his money because he bought Apple stock at the right time. Does that mean he was smart… or lucky? Slow and steady saving with a disciplined plan leads to good results, just like the tortoise that moves forward slowly and steadily. Betting on luck or skill may be a good decision, and you might have an unpleasant surprise. Simply put, read the story of the tortoise and the hare.
Be comfortable with cash
If you feel that money sitting in cash accounts or money market accounts is going to waste, think again. Cash can be a great place to store money while you research, study, and learn how to make smart decisions with it. People who have cash are positioned to take advantage of great investment opportunities when real estate or stock markets decline. Those who are fully invested do not have the same opportunities.
Understand what you own
A stock is not the same as an index fund. A bond fund is not the same as a stock fund. It’s surprising how many people own large-cap stock funds and react with irrational fear that they might lose all their money. Do they have any idea what they own? Do they really think that all of the largest 500 companies in the United States will go bankrupt at the same time? There is a distinct difference between what I call an investment risk level of 5, where you can lose all your money, and an investment risk level of 4, where you cannot lose all your money.
Read
Books Are Not Just for Websites
I love the internet. The amount of available information is amazing and sometimes overwhelming. However, to gain depth of knowledge on a subject, I believe nothing compares to a good book. It makes sense that educated investors improve their chances of achieving higher returns. Connect with learning first, and you will become better at investing.
Study Your Shopping Habits
When was the last time you went to the mall and saw something you really wanted to buy at a 50% discount and thought, “No, I’m afraid the price might drop more. I won’t buy it now.”? When stock prices drop significantly, it means that your future financial goals are on sale. Better investing means gaining the knowledge and discipline to recognize things when they are on markdown and to buy them at a low price.
Remember, They Don’t Know You
Who are “they”? All the people (including me) who offer financial advice and commentary to the public. We don’t know you or your situation. We offer advice that applies to a broad audience. Does it apply to you? I don’t know, and “they” don’t know either. You and your personal financial advisor can determine if the advice applies to your situation.
Source: https://www.thebalancemoney.com/become-a-better-investor-2388570
Leave a Reply