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5 Habits of Successful Investors



As you develop your investing skills, learn these 5 habits of successful investors to help you fine-tune your personal strategy and gain confidence when it comes to investing.


1. Setting Clear Goals


“No wise pilot, no matter how great his talent and experience, fails to use his checklist.”

– Charlie Munger


Successful investors set clear goals before they start investing. Your aggressiveness and liquidity will largely be determined by your financial goals and the amount of time you have to achieve those goals.


For instance, a 25 year old who is investing for retirement can afford to be more aggressive with less concern for creating supplemental retirement income. On the other hand, a person who is already retired is concerned about preservation of capital and easily accessible income.


Every goal is unique, and your investments should align with your goals. Whether you are just getting started or you’ve been investing for years, it is extremely important to clearly identify your goals and develop an investment plan that supports them.


2. Staying Diversified


“Diversification of risk matters not just defensively, but because it maximizes returns as well, because we expose ourselves to all of the opportunities that there may be out there.”

- Peter Bernstein


Another habit that supports successful investing is staying diversified. If you’re too heavily invested in one stock or industry, your portfolio may be more volatile than you desire, and you may experience unwanted losses.


By diversifying, you are spreading risk among numerous investments rather than putting all of your eggs in one basket. While it’s tempting to chase bigger gains in thriving sectors or companies, it is important to stay patient and diversified.


It can be challenging to find enough individual stocks to properly diversify away risk, which is why many savvy investors use pre-diversified investments such as mutual funds and exchange traded funds (ETFs) to help make diversifying less burdensome.


3. Being Patient


“Someone's sitting in the shade today because someone planted a tree a long time ago.”

- Warren Buffett


Patience is a critical habit when it comes to success with your investment portfolio. There are inevitably going to be ups and downs in the market, but trying to time these swings is extremely difficult.


A typical mistake made by less successful investors is pulling money out when the markets are down and reinvesting when markets are up. For example, during the onset of the pandemic, the market experienced steep losses in March 2020. However, the market rebounded a few weeks later, and by August 2020, the S&P 500 (an index that represents the 500 largest U.S. companies) exceeded it’s pre-pandemic levels.


If an investor panicked and sold their investments at the bottom, they would have completely missed the recovery! The lesson is to first build a portfolio in line with your goals, and then be patient.


4. Weaving Saving into Your Lifestyle


“The time to save for the future is now. Thanks to compound interest, the earlier you start putting money away for the future, the more you will save.” - Alexa Von Tobel


When it comes to investing, a little bit of savings can go a long way. The power of compound interest is significant, especially if you start early. Compound interest is most easily described as interest earned on interest.


For example, if you invest $1,000 at a 10% rate of return, your investment grows by $100. If returns stay the same for the next period, not only will you make $100 from your original investment, you will also make $10 from the $100 return you made during the previous period.


This is why it’s important to create a budget to determine the maximum amount you can set aside for investing each month. Then let your portfolio do the work for you.


5. Doing Proper Research


“Behind every stock is a company. Find out what it’s doing.” - Peter Lynch


It’s always a good idea to educate yourself on any investment before committing your money to it. It can be fun to jump in on the hype you hear around you, but it is crucial to determine if the investment is in alignment with your portfolio and long term goals.


Before every selection, educate yourself enough to determine if the investment is a good fit for you and your needs. Public hype can lead to an investment’s price being overvalued, which is why YOU should always do your own due diligence.


The research process can be an extensive time consuming process especially for beginners. It is never a bad idea to seek professional guidance from those carrying a Series 65, CFP, CFA, or MBA designation.


Looking for help with next steps? Our advisors at Finwell can help you understand all of your options and create a plan to reach your goals. Get started by emailing info@finwellbenefits.com or scheduling a consultation today.



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