Five Habits of Successful Investors| North Loop Official Blog
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11 Dec 2020

Five Habits of Successful Investors

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Introduction -

The purpose of investing is to grow your wealth or reach your financial goals like retirement savings, owning a house, paying for college or travel expenses etc. But what are the steps that you can take to ensure that your investment efforts become successful? In this article, we will talk about five habits that separate the most successful investors from the rest. What is it that they do that makes them so successful, and how to make the same methods work for you?

Start with a plan -

If you have been wondering how to make good investments, how to get success in the stock market or how to become a good investor in share market, the first step all experts and successful investors recommend is to start with a plan. Creating a financial plan can provide you with the foundation for your investment success and help you assess your priorities, financial goals as well as determine the steps you can take to reach them.

It is also important to remember that financial planning need not always be expensive. You can use the various tools and applications available online that guide you to make a sound financial strategy and plan based on your priorities, preferences and long-term goals.

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Be a supersaver -

To start saving early can never get emphasised enough. It is the first step towards a sound financial strategy and can prove to be a powerful force for making progress towards reaching your long-term financial goals.

That is because if you do not get a clear understanding of how much of your income you are putting away for the future, your financial plan can go haywire later. Sudden emergencies and the uncertainties of life can then lead to tremendous stress and financial burden.

That is the reason most experts suggest putting away at least 15% of your income for retirement as a general rule of thumb. Though this number is not fixed and can change from person to person, it can get used as a general starting point.

There is also a lot of evidence and data available that states that the earlier you start saving, the faster you can reach your long-term goals.

Another thing to remember while creating a plan is that your income level greatly affects your saving habits too. So, it is wise to create additional channels of income that can aid you in saving more and collecting funds for your future.

Diversify -

Another critical foundation of successful investing is diversification. This investment strategy can help control risk and create a portfolio with substantive growth potential. Owning a variety of stocks, bonds, and other assets can also reduce risk to a level where it becomes easier to stick with your plan through the ups and downs of the market.

While diversification does not guarantee a risk-free portfolio, it aims to provide a balance between your risks and returns. So you might experience losses even after diversification, but the trade-off between risk and reward becomes reasonable. Moreover, diversification can fit in various kinds of financial strategies and plans as it allows investment not only among stocks, bonds and cash but also within their different categories. You can also diversify your stock exposure across regions, sectors, size and investment style.

Some examples of the various investment styles can include value investing, growth investing etc. Similarly, investing in small-cap stocks, mid or large-cap stocks also becomes a part of diversification. Even if your strategy includes investing in bonds, you can diversify across different credit qualities, maturities and issuers.

Stick with your plan, despite volatility -

Most successful investors master the art of sticking with their plan despite volatility. They maintain an allocation to stocks that they can live with within different types of market scenarios. Even in the financial crisis of the 2008s when stocks had dropped nearly 50%, most of these successful investors stayed invested in the stock market instead of running for safety in cash. It was these investors who ultimately managed to save more and were better off than those who had headed for the side-lines.

According to the available data, the impact of their decision and investment choices helped them to observe growth at 147%. More than 25% of those who sold their stocks during that time missed the gains that followed and could never get back into the market.

Therefore, along with choosing the most successful stocks to invest in, sticking with the plan despite volatility can get benefits in the long run. While the most successful stocks may not be the same for everyone, the above strategy can work for most people, and the data proves it.

It is normal to get anxious when the stock market drops, but it is also essential to stick to the long-term investment plans and to have enough growth potential to achieve your goals. Moreover, if you think you cannot stomach the ups and downs of the market, it is best to consider a less volatile asset allocation.

Focus on generating after-tax returns -

Most successful investors invest in instruments that can offer them after-tax returns. That can get done through the concept of ‘account location’. According to this strategy, the amount of money you put into different types of account should get based on their respective tax treatment.

Similarly, asset allocation also follows the approach of putting investments in various types of accounts, based on the tax efficiency of each of the investments. Most successful investors invest in financial instruments keeping these strategies in mind and put them in different accounts after considering all the above factors.

Conclusion -

We hope this article helped in answering some of your questions like how to make good investments, how to get success in the stock market or how to become a good investor in share market. While it is a fact that investing that can get complex and sometimes feel overwhelming, especially with the unpredictable movements of the market or the sudden losses, it is not as difficult if you create a smart plan and stick with it.

Most skilful investors spend their time building a strategy and saving enough money along with making reasonable investment choices to enjoy the fruits of their labour and to become successful investors.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.