In the pursuit of financial prosperity, growing our money is as vital as earning it. Many individuals accumulate wealth during their working years, yet struggle to enhance or retain it over time.
This article delves into the 15 essential traits of successful investors – those who consistently multiply their net worth, securing a position among the top percentiles of wealth.
The foremost quality for a successful investor is cultivating a deep understanding of investing and nurturing a resilient mindset. This foundation empowers you to navigate the complexities of the financial journey, ensuring prolonged commitment and the creation of extraordinary wealth.
It’s crucial to acknowledge that substantial wealth is typically built over time, excluding windfalls like lotteries or gambling wins. To safeguard and grow your wealth, you must embark on a judicious investing journey, steering clear of pitfalls that have befallen many celebrities who, despite significant earnings, faced financial setbacks.
Join us in exploring these traits that can reshape your financial trajectory, multiply your investments, and pave the way for a prosperous future.
Here are the top 10 traits of a successful investor
Below are some of the long observed methods followed by successful investors, who created exceptional wealth in their life, in a concise and jargon free expressions, however, the methods are not limited to the following:
1. Understanding the investment first you are about to do:
Before investing in an asset, meticulous gathering of information is crucial for making informed decisions. This includes realistic return expectations, an understanding of associated risks, and aligning the investment’s time horizon with your objectives for better returns and understanding the fundamentals of the investments.
For instance, investing in a stock of company, could bring exponential returns, but you need to understand the business first, such as:
- What are its products and services being offered in the market?
- What are their popular brands? it is better if you are using one of those.
- How were their past financial performances, like, sales and profitability?
- Are there any considerable amount of debt or loans taken by company?
- Share price has not been ran too much at the point of investing, is so, you may wait a little and start investing in s staggered manner.
- Is the business future proof, that is, the demand of its products will be there in next 10 or 20 years from the consumers?
Secondly, if it is a real estate investment, then again, you need to figure out if, there will be demand for that property currently and elevate value in the future for its rental and price gain, based on the location it is situated.
Similarly, in all the investment classes, you need to foresee the approximate returns and risks associated with each asset, to preserve and grow your invested amount to become a Successful Investor.
2. Investing for the long-term period:
To reap the benefit of most of the investments, we need to keep patience for long period of time, is one of the important traits of successful investor. Long term could be more than 5, 10, 20 years, even more depending upon the goals you want to achieve.
Especially, equity investment, such as, stocks, mutual funds and ETFs, tends to return much better returns in the long term, as it evens out the short term price corrections.
Furthermore, the power of compounding comes into play, when the investments are kept for longer period. For instance, if you invest 10,000 bucks each year for ten years and rate of return expected is 10%, then the corpus will become 175,311.67 bucks. But, if you increase the period by just 5 years, the amount shoots up to 349,497 bucks, just about double.
“Compounding is the 8th wonder of the world“
by Albert Einstein
Thus, start investing early in your life, to allow power of compounding money for a lower needed capital.
Finally, the risk of investment, goes down considerably in the long term, as against short terms market turmoil. For instance, low quarterly profits and sales growth or any bad news for the investments, may be corrected by an efficient management and return back to the up trend in the long run.
Additionally, in the events of 10-20% correction, the long-term successful investors buy more of their carefully researched stocks or assets, for even more return in the longer term.
3. Diversifying your investments:
There are few experts, who has the perspective that when you find an opportunity, which will give returns better than others, you should invest with bull of your available funds. However, those particular investors are small in number and gained from this strategy.
For rest of us, it is utmost important to diversify our investments indifferent sectors, stocks, if in equity investing and at different locations, if in real estate investing, for instance, as one of top traits of successful investor.
Specifically, in stocks, we should be investing in companies having minimum correlation between them, that is, those are competing in different products and services and not competing for same market share.
For example, if someone is invested in a major bank stock, so instead of investing in another bank stock, he should think of investing in a technology related company having good prospects.
Similarly, you may diversify into, automobiles, insurance, infrastructure, consumers, manufacturing, retail, and others, to take exposure of growing and stable sector companies, to minimize the concentration of risks.
4. Follow Asset allocation strategy:
Complementing to the previous point, you should also invest in variety of assets and build diverse portfolio, instead to concentrating to one of the investment avenues.
For instance, your portfolio may comprise of some of the performing investment classes such as, stocks, gold, Bonds, Debentures, Real estate, Art, commodities, to name a few.
Moreover, you may also diversify in terms of geographies, in the equity or real estate markets, instead of investing in a single country, to become a successful investor.
As they say, “Do not put all your eggs in one basket”.
The key here, is to have minimal correlating assets, as mentioned above, meaning, the prices of those assets should proceed into different directions, some are going higher others are lower.
So that, in the event of a less performing asset class, another asset may compensate for returns and minimize the downside risk. Normally, Gold and Stock market have negative correlation, so, we can invest in both the assets and diversify risks. For instance, in the year 2020, stocks market were down and gold went up by 30%.
However, exposure to different investment classes should be taken with your own risk profile and asset related risks. Additionally, liquidity, or ability to convert investments into cash, should also be taken into account.
In this scenario, real estate cannot match assets, like, stocks or low duration bonds and FDs. Asset allocation has been considered as by far the best strategy of a successful investor and maximize returns over a long period of time.
5. Avoid Emotional decisions, while Investing to become a successful Investor:
One of the biggest mistake one can do while investing, is taking decisions based on your emotions. There are situations in the market, where sentiment flows more than the fundamentals of the economic situation in a particular country.
Furthermore, there can be greed, fear and euphoria, and you may find yourself in a dilemma, whether to continue with your investments or to withdraw. That is, the prices fluctuate of a particular asset, going up or down drastically by 40-50% within a short period of time.
Most importantly, you need to be prepared according to the risk taking abilities, that an asset class brings and the time you initially wanted be invested to achieve certain goals. The price is the function of short-term uncertainties in the markets, due to war, pandemic, financial crises and others.
However, making decisions based on those short lived periodic events can be a disaster to your investments. These situations are smoothened out by the performances of a particular business, wherein, many companies continued to produce and sells their essential products, for instance, food, consumer, energy, technology among others.
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
― Warren Buffett
On the contrary, as mentioned in the quote, you may buy more when others are selling heavily and sell when others are buying at a higher price in the markets to maximize the returns to become a successful investor.
6. Tracking your investments periodically:
You have made a long-term commitment with a stock or a real estate property, there may be chances that those perform badly for particular period to time or a year, you do have a choice to shift to other opportunities in the market. So, periodic monitoring of the business is important for a successful investor.
For instance, there are some companies in the top 100 a decade ago, may not find their place presently in top 200 even. Either they are stagnated or declined as business or others are showing much better growth and meeting current consumer’s demand. Take an example of Exxon mobile, DowDuPont and more.
Importantly, do not get emotionally attached to an investment or a stock, it may have performed in the past, but others may be equipped with modern technology and processes, as one of vital traits of successful investor.
However, it should not be a regular approach of you, to churn your current portfolio and buy new ones, particularly, in a short period of time, which lasts into few quarters even year. Always remember the objective with which you have bought the investments.
You may also want to study “Behavioral finance” as topic to improve on emotional intelligence, to act rationally in unusual situations, while buying and selling of an investment.
7. Systematic approach towards investing process:
We already discussed about avoidance of emotional factor, while deciding on the investments. Similarly, it is also prudent to automate your investing process, so that, your procrastination, haste, waiting for timing the market and such emotional factors do affect your regular investing.
One of my friends, waited for 11 months to start investing, because, he wanted to enter the stock market at a lowest-level possible. This period was from March’2020 to Feb’2021, while markets have run just about 100% from the lows.
Thus, it makes sense to systematically invest, weekly or monthly, in a particular stock, Bonds, mutual fund, ETF or even REIT (Real Estate Investment Trust), this method of investing also called as SIP (systematic Investment Plan). Even if you forget to invest regularly, the system created by you and instructed to your stock broker, will act on behalf you, to invest systematically, without fail.
This way, we may not invest at the lowest levels of the prices, but avoid the such case of not at all invested at any level, trying to time the market and loose the plot altogether.
Secondly, even if, markets are at top from one-year levels, 10-20% price gain will not make much of a difference in a very long-term period, especially, when you are here to invest for decades.
Finally, it is also advisable to increase the investable by at least 10% of amount each year, which will result in a bigger corpus of money in a long run and become a remarkably successful investor.
8. Invest according to your financial Goals:
To make every investment, irrespective of investment asset class, it should be seen from a perspective of your financial goal, to be achieved. In other words, we should direct our investment towards a particular financial goal separately , which will result in the right kind of investments and avoid unnecessary risks.
For instance, someone invested in equities, but the money is needed in just after 2 years, he may end up with lower returns or even loss of capital, while he has to withdraw the amount anyway.
Similarly, a person selected bank FDs thinking of building corpus for his retirement, he may end up well short of his intended amount, due to less rate of return and inflation impact.
Therefore, every investment should compliment your financial goal, for example, money required for your retirement, may allow a long period, so, equity investing will provide better returns.
Whereas, if your child is going to college in the next 2 years, you may want avoid equities and invest in bank fixed deposits, bonds or debt mutual funds, moreover, that sum of money should be liquid enough (conversion to cash) in the near future.
Goal based investing, is vital for your successful financial future, you may take help of a professional, to calculate and advice on particular investment vehicle, according to your goals and risk profile, resulting in lesser risk and higher returns.
9. Take Indirect route to investing, if you do not know “how to”:
Unless, you are well aware of the investment you are about to make, you may opt for the option of indirect investing, wherein, a subject matter expert, called portfolio manager, will decide on your invested money, according to your investment objectives, in which of the stocks or fixed income option to invest in.
In other words, you hire a professional, who is well qualified and have rich experience in the investing world. You pay a nominal fee and build a portfolio of investments, suited for your risk profile and return expectations. Some of examples of Indirect investing are:
- Mutual Funds
- Exchange Traded Funds (ETFs)
- Index Funds
- Unit Linked Insurance Plans (ULIP)
- Portfolio Management Services (PMS)
Above options are best suited for an investor, who is busy in his/her daily job or businesses and have no time to understand the investment world deeply, but wants to invest his money for better returns, diversification, beat inflation and market index, in the long period of time and still become a successful investor.
Additionally, there also an option of not much of human intervention investment, called passive investing, where, you just buy a particular Index, such as, S&P 500, Dow Jones Industrial Average (DJIA), BSE Sensex, Nifty 50, to name a few, at a much lower cost.
10. Learn and grow your Investments:
A successful investor never stops learning about the process of investing and how to understand the investments deeply to their advantage. After all, it is your money at stake. It is the your unique style and in-depth knowledge, which would bring extra ordinary returns to the table.
You are always stay updated through business generals, investment books, reading articles by experts, story of successful investors, study fundamentals; qualitative and quotative investment analysis by attending investment courses to be a successful investor
Additionally, after doing all above measures, you need patience, which is the key to exponential profits from the most investment options. Many a times, it is better to do nothing with your invested money, in a situation where there is lots of noise about something.
Instead of jumping the bandwagon, you need to research and take investment decision appropriately and ignore the noise to be a successful investor.
The Bottom Line:
Investing aims for higher returns than traditional assets like FDs, embracing a calculated level of risk. Deep knowledge of investment options is key to building a substantial corpus and reducing risks to be a successful investor.
Additionally, being conscious of your income versus expenditures situation, will help to raise more cash or to increase your money savings, resulting in more investable funds.
Most Importantly, constant learning, strategic planning, emotional control, and patience are the pillars for long-term investment success, leading to lasting prosperity. Successful investor adhere to a well-thought-out investment plan and resist the urge to deviate based on short-term market movements.
Disclaimer: Above content is written for educational purposes and not a direct advice to anyone. Do consult with your financial advisor for all kinds of financial decisions.