Want to become a more successful investor? Then you may need to spend more time working at it.
According to Bureau of Labor Statistics data, the average amount of time people spend on managing their finances per day is 1 minute 48 seconds. We can do better. Especially when you consider the same survey shows people spend on average two hours 50 minutes watching TV each day.
Would you rather dedicate more time to finding out who rules over the seven kingdoms in Game of Thrones, or making sure you’re on track to achieve your biggest financial goals? Yes, tough call.
One reason why some people would choose the former is confusion over how to tackle their finances.
A ValuePenguin survey found that 63% of Americans say they don’t understand how a 401(k) plan works. Not taking full advantage of your 401(k) or other retirement account is one of the biggest mistakes you can make when planning for retirement.
The truth of the matter is that you don’t need to spend hours each day checking your bank accounts or analyzing your investment returns. But you should make time to understand how to properly manage your money – not only to help build wealth but also avoid making costly mistakes.
The human element is a profound factor in investing. Natural tendencies such as fear and overconfidence can cause us to make bad investment decisions, such as chasing market fads and not diversifying. It explains why the average investor often earns below average market returns.
So, why not take just a minute to learn what it takes to become a successful investor.
We’ll track the time. GO!
:60 Tune out most financial news. The media hype is rarely warranted, breaking news has no bearing on your financial goals, and too much market information may be bad for your health.
:55 Log off from your online investment accounts. Smart investing is like a gradual boil—don’t waste time watching the pot. Constantly checking returns raises anxiety and the temptation to make trades. If you only check your portfolio once a year, the likelihood of seeing a gain is 93%.
:48 Build a diversified portfolio. Spreading your investment dollars among different assets can lower volatility within your portfolio – increase the chances you stick with it. With a balanced portfolio you can benefit from periods of growth while resilient during those inevitable downturns.
:40 Review your financial goals. Investing is meant to generate wealth for specific goals. Make sure they are realistic, measurable and reflective of your values.
:36 Think ahead not behind. Your investment selection should be based on your financial goals instead of historical performance or the latest market trends. Past performance does not equal future returns.
:33 Embrace boredom. The thrill of trying to pick the next Apple or Disney can be quickly tempered by poor returns. Face it: you can’t predict the future. When it comes to your retirement accounts, you’re better off with a stable portfolio of mutual funds that can compound over a long period of time. Leave stock picking to the thrill seekers who don’t mind losing money.
:27 Be humble during the good times and calm during the bad. Capital markets are volatile in the short term. You may think you know what’s coming next, but the market has a way of showing you otherwise.
:23 Imagine your portfolio losing 30% of its value. Can’t bear the thought? Then make sure your asset allocation appropriately aligns with your tolerance for risk.
:19 Rebalance your portfolio. Sell some of whatever has done best and buy some of whatever has done worst to rebalance your investments back to their original targets. It is a way to maintain diversification and help control risk.
:14 Tell everyone you’re a communist. Not really. But declaring your hate for the free market may be the best way to keep friends and family from pitching their hot stock tip or can’t-miss investment ideas.
:09 Track your expenses – investment costs, advisory fees, etc. The more you pay, the less of your return you get to keep. That’s less money you have in your portfolio compounding and building wealth. Fortunately, cost is one thing you can control.
:03 Speak to a financial adviser. An adviser can help choose the right investments for your needs and provide guidance during times of market trouble so that you feel more confident in your financial future.
:01 Take a walk. You cannot influence the markets or events that affect them. Put your investment efforts in what you control (costs, asset allocation, rebalancing, etc.) and let the rest work itself out.
Spare us a couple more minutes
Okay. Perhaps it took longer than 60 seconds to read everything. But that’s the point. You won’t become a successful investor overnight. It takes years, even a lifetime, of conscious and deliberate decisions to not only do what’s right but also avoid doing what’s wrong.
The more time you give your portfolio, the better the results. That’s the power of compounding and the benefit of patience. It’s also the benefit of working with a financial adviser who knows you well enough to create a portfolio you’re comfortable with for the long term, who can monitor that portfolio, and who can coach you along the way to your goals.