5 Keys to Successful Investing

5 Keys to Successful Investing

When it comes to investing, there is no one-size-fits-all strategy or step-by-step protocol that will lead to success. One of the most common inquiries by individuals who are looking to enter into the world of investing is centered on discovering the secrets to being successful. When people ask me what the secrets are to becoming successful in investing, I laugh, and then I respond, the secret is that there is no secret. That is the first thing that you have to get in your head about investing. Investing is more about understanding who you are and what you want to accomplish than it is about any one strategy. If a person doesn’t have a lucid perspicacity of who they are, where they are headed and what they want, they will not be successful in investing, regardless of what strategies they implement. They will find themselves behaving capriciously, and they will be all over the place. 5 Keys to Successful Investing lays out five key investment principles that are the core of successful investing.

In its simplest form, investing is about getting the basics down and getting to know yourself. This is not to say that investing cannot be a complex dynamic, but even the most complex concepts can be easily simplified when a person is clear on their objective. With that being said, following are some very powerful keys to successful investing; however, the tips are contingent upon a person having a clear understanding of who they are and what they want, as well as possessing a willingness to invest in themselves first.

Know What You Own and Why You Own It

A seasoned investor is more likely to explain to you why they invested in something before telling you what they invested in. This is representative of having an investment plan that is anchored in a paradigm that is goal-centered. In other words, investments must be chosen based on a specific plan that is centered on specific goals. A collection of investments is not a lucid investment portfolio if it is not anchored by a specific goal-centered plan.

One way that investors can ensure that they are working with a focused plan to guide their investment decisions is to use the acronym SMART.

• Specific: Goals should be clear and specific, and they should be written down
• Measurable: If your goals are not measurable, they are not goals, but wishes
• Ask: Seek advice whenever necessary; investing has no room for pride
• Responsible: Be invested in yourself enough to make the necessary adjustments
• Transparent: Sharing your goals with your family and friends creates accountability

Be Prepared for Jumpy Markets

While recent years have produced some very calm markets, this is not the norm. While the natural proclivity of the unseasoned investor would be to retreat from the market when the market dips, the seasoned investor understands that there will be these type of value fluctuations in any market, and they will simply adjust. These fluctuations are known as market volatility, and they actually create some unique opportunities for the investor who is prepared to work within the flow of the system. For instance, where the inexperienced investor would bail out when values begin to fall, the experienced investor would actually buy at a discounted price. The key is to become familiar with any market in which you will be making investments, so that you will recognize drops that are just part of the normal trend for the market.

Diversify

Diversification is probably the most common term in the investment world. It has been used so much that it has become a cliché; however, there is a very good reason why the term diversification is so popular. Diversity is one of the best ways for an investor to protect their aggregate investment. Diversify is simply an investment directive that is saying, don’t put all of your investment eggs in one basket. Investing all of your money in one market makes you extremely vulnerable. While investing in the right market may make you a lot of money. Being so heavily dependent upon that market makes you vulnerable to a major market shift, meaning that you could possibly get cleaned out, depending on how your investments are set up.

With a diversified portfolio, which represents investments in multiple markets, your overall success will be protected, because it will be able to take a hit in one market because of the sustained success in the others.

Reevaluate The Idea that Cash is Safe

This cannot be stressed enough. Cash is not an investment strategy. Intellectually, most people understand this; however, they have a tendency to stick with treating cast like an investment because they believe that cash is safe, but the truth is that cash assets are highly vulnerable for a number of reasons. This has never been more evident than at the current moment, with China and the U.S. having a currency show down. Currency can be devalued, and that quickly, a person who holds the vast majority of their wealth in the form of liquid cash, will go from being wealthy to starting over.

Holding on to cash has a major negative impact on building future spending power. Frist of all, cash provides very little in the way of return. In fact, it can lose money thanks to taxes and inflation. While the current level of inflation is low, a rise in inflation for a significant period can lower the value of currency significantly. When you pay attention to the way that the U.S. has been manipulating the value of currency, while resting under substantial debt, holding cash is just not a smart thing to do. It would make more sense to invest in real property and non-liquid assets, such as gold, diamonds, property, etc.

Don’t Be Tempted to Set It and Forget It

There are a number of old rules of thumb that are often dropped as nuggets of wisdom on new investors by more experienced investors. The problem with these rules of thumb is that they don’t take into consideration, the unforeseen changes in the market, nor do they consider the unexpected changes in the life of the investor. What may be a good investment strategy today may not be a good idea next month or next year. So, the set it and forget it mindset can cost an investor money. It is better to evaluate the existing strategy on a regular basis and make the necessary adjustments along the way.

While these tips provide valuable insight, they mean absolutely nothing until you commit to know who you are and what you want. It is then that you will be able to use these tips and others to accomplish your financial goals. ~ Dr. Rick Wallace, Ph.D.