Here’s how to increase your returns.
Photo: Unsplash | Source: Medium
Investing is one of the most important skills to master. With this skill, you can multiply your money and expand your wealth.
While a variety of investment assets can help you achieve wealth, the most crucial asset is your mind. If you have the mindset, over time, you will become a successful investor.
Your mindset is dictated by a string of habits you develop over your lifetime. Most people develop these habits unconsciously. If you are conscious about the investing habits you develop, you can set yourself up to becoming a successful investor.
These are the five habits that will pay great dividends if you incorporate them into your investing.
Habit #1: Take Calculated Risks
Investing assets such as stocks and properties are often seen as risky business.
However, risk is relative to your knowledge of the investment. The less you know about an investment, the riskier it is.
Tesla is an excellent example of this concept. I think it is a risky stock because it’s ballooned from about $225/share to $2,200/share (pre-split) in a year. Some Tesla investors are buying into the stock simply to ride the momentum. Others consider what Tesla can deliver later down the road and see their position as a calculated risk.
Tesla is extremely risky for some investors and a calculated risk for others. This brings us to our second habit…
Habit #2: Only Buy What You Know
Just because an investment is popular right now doesn’t mean you have to embrace it. The investors who get burned the most chase upward trends they know nothing about.
If you do not buy what you know, you’ll either become overconfident and get burned for that hubris, or less confident with your future investing decisions — you’ll remember the time you got burned.
Sometimes people get lucky, and there is an element of luck in investing. Still, luck without skill is a dangerous combination.
Habit #3: Keep The Long-Term Picture In View
The benefit of buying what you know is that you can more confidently hold onto those stocks during downturns. I invest in Big Commerce, believing it will produce incredible returns over the next 5–10 years.
With that in mind, I can swallow the current volatility of the stock. Even if it went down 30%, I’d still be confident with my investment and hold onto it.
One of the biggest mistakes investors make is buying high and selling low. People sell low because they lose focus of the long-term picture. Their short-term 30% loss overwrites the part of their mind that believes the stock will double in five years.
If a company goes through drastic changes to the point where it’s a shell of what it once was, that’s a different story. Exxon Mobil was the largest company back in 2013. Seven years later, it was kicked out of the DOW. Exxon’s financials and future outlook have changed a lot from 2013 to now.
Habit #4: Always Do Research
Read up on the latest news around assets you invest in or are considering. The more research you do, the more opportunities you discover.
Don’t limit yourself to what you know. Research turns the unfamiliar into the familiar.
To learn if a specific location is great for real estate investing, you can look up the crime rate of the area, state laws, nearby attractions, and other factors you deem important.
If you don’t know which factors are important for making good real estate investments, keep researching until you have a suitable answer.
Ask experts in these areas, such as what property, where and why? If you cannot get straight answers move on
Without research, it’s easy to gravitate towards household names when picking stocks. However, there are far greater opportunities that aren’t as mainstream. Research allows you to spot those opportunities and essentially find the needle in the haystack.
Habit #5: Live Frugally
Successful investing isn’t only about knowing your stuff. It also involves you building out your investment portfolio — $1 at a time.
Building up your income provides you with more dollars to potentially put into your investments. However, if your spending rises faster than your income, you’ll end up in debt.
You may have the potential to become a successful investor, but neglecting your personal finance setup turns you into a conceptually smart investor at the very best.
You can’t call yourself a smart investor without first investing, and you can’t be a successful investor without investing a ton of resources along the way.
Live below your means. This will give you a better understanding of the value of money, and you’ll think more carefully about each purchase you make. Making $5,000 each month and only spending $3,000 each month on expenses is a great way to live. You can invest the extra $2,000 each month and watch it turn into a giant nest egg.
Investing is a long-term game. The habits you develop will guide you and either help or hurt you. These habits are designed to help you along the journey. If you believe there are other habits investors should develop along their journey, let me know in the comments.
At Positive Income Properties, we help people find Financial Independence and retire early.
Have a look at our FREE 14 module online course called “Fire” and feel free to use the material in it to establish better financial habits.