Finance

Simple Strategies to Become a Successful Investor

To become a successful investor, consider the following simple strategies.

May 29, 2014

Wealth management is one of the most important aspects of long-term financial success. Part of managing your money requires smart investing, which is one of the best ways to sustain wealth over time. To become a successful investor, consider the following simple strategies.

Don't Let the Small Stuff Get to You

Investing money in stocks and other markets comes with ups and downs. There will be periods when your investments go down, and dealing with these times is part of your long-term vision. According to Investopedia, you can’t let the small ebbs and flows get to you, or you could drive yourself crazy. Volatility in the short term is inevitable, which is why keeping your eye on the big picture when tracking investments is critical. The last thing you should do is sell off every stock that declines for a couple of days, as this is a losing strategy.

Diversify Your Portfolio for Risk Management

Putting all your eggs in one basket is never a good idea when investing money. No matter how well a company performed in the past, don’t be tempted to invest all your funds in that one business. According to The Street, diversification is key, as it allows you to spread out risk in your portfolio. By diversifying, you don’t have to sweat the small stuff, as a simple decrease in one of your investments can be offset by increases in others. That said, when choosing investments, make sure to spread them out across numerous industries and across all types of investments.

Resist the Lure of Penny Stocks

Many think that penny stocks come with minimal risk, but that isn’t necessarily the case. Whether you invest $100 or $1,000, a stock that tanks can cost you 100 percent of your investment. For this reason, Investopedia says a $5 company can have just as much downside as a $100. Penny stocks may be risker, as these investments don’t come with the same regulations as a company with a higher share price. There is certainly money to be made with penny stocks – as with any other market – but putting too much time or energy into them is generally not advised.

Panicking Never Made Anyone Money

Much like not sweating the small stuff when a stock sees slight declines for a couple days in a row, it is also recommended not to panic if a stock tanks. Human nature might tell you to sell immediately and cut your losses, but this isn’t always the best move. Unless the economy is headed toward another recession, a day of tanking can be weathered. More often than not, there is a better time to sell a stock than when it tanks, which is why you need to avoid panicking when it comes to your investments, as it could end up costing you in the long run.

Don't Own Too Many Companies

It is easy to invest money in Apple® and Google®, but that doesn’t mean you should put money in every company you know. According to The Street, there is such a thing as having too many positions, which is why you should choose your investments wisely. In fact, good performance is often linked to having fewer positions. Therefore, you need to choose stocks wisely while spreading funds across enough industries so that your portfolio is diverse.

Being a successful investor requires multiple traits. Not only do you have to diversify your portfolio, but you have to resist the urge to sell when stocks take a tumble. Going crazy and buying every stock you see generally isn’t a good idea either. If you choose to use the above strategies, keep in mind that you’ll need to proactively manage them to ensure your financial success. Read more about diversification.

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