The most successful investors today are worth billions. A good example is Warren Buffet. He is an expert on the markets and his net worth indicates his excellent judgement. We all want to be successful investors. It is important to know that it takes time and effort to excel in this activity. It also requires making mistakes and learning from them. Over time, you get to identify your investing personality and how to capitalize on it to make a fortune. The first step in this journey is always to learn as much as you can about wise investing. Here is how to become a successful investor.
Make a plan
Every valuable activity requires a solid plan of action. Investing is one of these activities. You need to identify your ultimate investment goal. It can be a particular amount of money, a specific investment portfolio or even retiring at a specific age. Identify your ultimate goal first. After that, you identify the amount of capital you want to invest, how you are going to allocate it and the investment strategy you will apply to get you to your ultimate goal. This is the first step to becoming a successful investor.
Education is an investment that keeps on giving. The more you know about investing, the better you can perform in the market. Therefore, find and read books about investment. You can also take a course that explains how to do it. Educate yourself about the theories of investing. Examples of these theories include diversification, optimizing your portfolio as well as measuring and identifying efficiency in the market. After learning about these theories and how they work in the market, you can apply them in your own investing activities.
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Know your investing personality
Every investor has a specific personality. We all know why we want to invest and the returns that we hope to get. Therefore, each of us is actually the most qualified to do our own investing. Thus, it is important to know the personality that we have when approaching investment. There are 5 unique investing personalities. One of these is the individualist investor. Those ones are careful and confident in their activities. Another is the adventurer. This investor is confident and impetuous in their investing activities. They have a high appetite for risk. The celebrity investor is anxious and impetuous. They are always more likely to follow what everybody else is doing in the market. The guardian investor is very careful and anxious. They are focused on the preservation of wealth. Lastly, there is the straight arrow investor. This one has all the characteristics of the other investing personalities combined. What type of investor are you? The answer to this question is critical in your journey to investment success.
Choose a path of action
In the world of investing, there are two main paths. One is where you invest in many different securities. This is known as a diversified portfolio. The other path is where you heavily invest in very few or even one security and then watch it very closely. Every investor has to make a choice between the two paths. Always analyze your personality, knowledge and capital at hand before you pick a path.
Find ways to shelter your investment gains from tax
There is a type of tax that is charged on the returns from investment. It is known as the capital gains tax. Whenever you make a successful trade, this tax is charged on your profit. The tax can deduct so much that you have little left to consider as a gain. Therefore, it pays to place your investment returns in locations where they are charged very little or no tax. An example of such a location is an Individual Savings Account (ISA). Another example is a Self-Invested Personal Pension (SIPP).
Invest in shares that have the potential of increasing in value and growth
In the world of investing, there are many approaches to the activity. Some investors perform value investing. This is where they allocate capital to shares that they are convinced will increase in value. Other investors perform growth investing.This is where they allocate their shares to companies that they believe will grow exponentially over time. If you want to be exceptionally successful, identify shares of companies that have both of these characteristics. Place your money in companies where the profits will improve due to growth or an increase in brand value.
Refer to the stock performance charts but make your own choices
Due to their numerical nature, stocks can be recorded and their performance can be charted. This can result in sophisticated graphs and charts that indicate the spikes and depressions of the value of a share over time. These charts can be simple or tremendously complicated. The point of creating these charts is to establish a pattern of performance such that one can accurately predict the future performance of some shares. This is a helpful activity to perform. However, it is not advisable to rely too much on the charts. You must use your own judgement too as you make trades. This is how to be a successful investor.
Invest in companies that you actually understand
As you choose shares to invest in, pick the ones whose business you fully understand. Pick the shares of companies where you know the prices of their resources, the methods that are used by their management in allocating capital and other specifics about these companies. You can build charts, apply specific scenarios and establish projections for these companies. This helps you to understand your companies of choice even better. By fully understanding the companies that you invest in, you can accurately know when to invest more or less. You also empower yourself to make informed decisions. Knowing as much as possible about a company before you invest in it helps you to know what to expect in its performance. In this way, nothing gets you by surprise. Only invest in a stock if you have and understand all this information about it.
The Important Take Away
The principles that you need to follow so as to become successful in the stock market are quite straightforward. They are indicated above and can guide you through the industry of investing. Learn this tips and increase your chances of becoming a successful investor.