How to Be a Better Investor

Achieving a high level of financial freedom will involve more than making money. It will also require more than saving money under a mattress or in a savings account. The best way for a person to increase their level of financial independence is through investing. However, the average American doesn’t do all that well this process. Here are some tips to be a better investor.

 

Put Money Into Stocks

As noted above, just socking money away in a savings account will not get the job done. This strategy will do well to keep up with the rate of inflation. In a situation like that which prevailed for several years after the Great Recession, savings will earn basically nothing. To become a successful investor, it’s important to remember that stocks are the best way to truly see growth over time. It’s commonly argued that stocks will return 10 percent yearly over the long run on average. History shows that this is a pretty accurate statement. The best time to put money into stocks is pretty much any time. Attempting to time the market is a fool’s errand.

 

Ignore Your Portfolio

This might be taking the argument a bit far, but paying too much attention to the ups and downs of the market will frequently lead to bad decisions. In other words, don’t stare at the screen watching the momentary gyrations of the stocks or funds. Those who focus on daily movements are more likely to sell low and buy high. Some trend charts that deal with moving averages and head-and-shoulder patterns will also lead to a similar temptation. Fear caused people to sell near the bottom of the crash that was tied to the Great Recession. Instead, this was a once-in-a-decade opportunity to buy near the bottom.

 

Avoid Excessive Trading

Trades are taxable events. A good analogy of the way incessant trading can affect a portfolio is a bar of soap. The bar has an important role to play, but the more it gets handled, the less soap is available to do the job. Selling at the bottom and paying taxes on capital gains can cause a portfolio to wear away. Of course, it can be a good idea to sell if a company’s underlying fundamentals have changed, but this step should not be taken at a moment’s notice and without forethought.

 

When investing, effectiveness can increase over time. Sometimes, doing nothing is the best option. Therefore, it’s a good idea to avoid paying too much attention to the daily movements in the prices of stocks.