The second habit of successful investors is that they start investing early. The sooner you start investing, the more time you give your money to
compound and build wealth. For example, lets say you start investing for your retirement at age 25, and plan to retire at age 65.
If you were to invest $200 per month with an average return of 10%, you could retire with over $1 million. However, if you were to wait until you were 35 years old to start investing, you would retire with just less than $400,000. Simply by waiting 10 years to start investing, you cost yourself $600,000.
So, if you want to be a successful investor, make sure to start investing early. Even if you can't afford to invest a lot right now, it is more important to build the habit of investing when you are young and up the dollar amount of your contributions later on.
Investing is a marathon and not a sprint. Successful investors have a long term vision and build the habit of looking far into the future when they make decisions. Although there are a select few who have gotten rich overnight from high risk investments (think crypto), most of the time it takes investors years or more commonly decades to build wealth.
In addition to the understanding that wealth takes time to build, having a long term vision can also help you stomach the inevitable ups and downs of the market. Yes, at some point during your investing journey, your investments will go down in value. The good news is that markets do recover given enough time, so hold on during the rough patches.
Making sure to diversify is such an important habit that successful investors share. You could have the first three habits nailed, but miss this one and end up not being a successful investor. As it relates to investing,
diversification simply means to not put all of your eggs in one basket. Instead you want to invest in different asset classes and sectors.
The reason? It can lower your exposure to risk. When one of your investments is performing poorly, the others in your portfolio that are still performing well can make up for it. Diversification does not completely eliminate risk from investing, but it does make it much more manageable.
Finally, successful investors control their emotions. Letting your emotions take over can ruin your chances at becoming a successful investor. The two most common emotions that wreak havoc are fear and greed. When the market is going up it is easy to let greed take over with the possibility of higher returns in sight.
When the market is going down, it is easy to let fear take over as your investments are losing value. Controlling your emotions ties back into habit number 1. When you have a plan that is right for you, you are less likely to waiver from that plan by making decisions based upon your emotions.
The bottom line is that if you want to be a successful investor you need to have a plan and stick to it, start investing early, invest for the long term, be sure to diversify, and control your emotions. If you master these habits, you have a great chance at being successful as you invest. If you are not yet investing and need practical help you can check out our guide on
how to start investing for beginners.
