Dear Happy Investor, investing requires developing skills. You need to study the market, research, have an investing strategy, etc. However, there is more than just that. It's essential to develop an investor mindset. And what is an investor mindset?
Our mindsets determine our thoughts, emotions, and actions. Therefore, they create our reality. The same applies to investing. When you develop an investor mindset, it will allow you to succeed. It's necessary to have the right mindset to avoid surprises when things start to go different than expected. And if one thing is sure: your investments will turn out differently than you think.
So, here are a few points to consider when you want to develop an investor mindset.
Don't make investments based on your gut feel
Emotional decisions are almost always poor ones. After all, no one intends to sell low or buy high, but that's what may happen to investors who don't have a plan or who deviate from it because they're scared or greedy.
When stocks are volatile, up one day and down the next, it's difficult to ignore these instincts. But if you try to time the market based on hunches, you risk making poor investing decisions. These hunches may be your own or come from friends, family, or the media.
Stop acting on your gut impulses as an investor is one of the smartest things you can do. You will almost certainly become a considerably better investor, as studies suggest that avoiding excessive trading improves the performance of your portfolio.
Making and sticking to a financial plan is the best approach to avoid these mistakes. Knowing where you're headed and how you'll get there can help the journey go much more smoothly.
Investors Mindset: Be patient
Patience usually involves remaining cool in situations when you don't have control. Patience is an essential part of investing.
Investing is a long-term endeavor, with the rewards often accruing over time. For example, companies need the time to grow its business. Investments need time for the compound interest effect. Moreover, a handful of your shares will be responsible for (at least) 80% of the profits.
Patience is another behavior with long-term rewards. Being patient means putting up with a temporary inconvenience in exchange for a future benefit.
Simply put, your brain makes patience difficult. The human body is made to respond to threats, whether real or perceived. Stressful situations trigger a physiological response in people.
The difficulty is that your body can't tell the difference between a genuine physical threat (in which fighting or escaping would be beneficial) and psychological stimuli such as horror movies or -10% loss in one day. It is difficult to remain patient because it means battling these instincts. Volatile financial markets can provoke the response, but there may be real-world consequences that require patience to overcome.
Mindfulness practices and meditation can help you work on your patience during investments. Read more about personal development.
Investors Mindset: Ask yourself why
Establishing a clear goal and a desire to succeed are the foundation that will keep you motivated during the process. It means asking yourself why you want to invest in the first place.
Investing is essential, but what motivates you to do so? Do you aspire to be financially free by a certain age? Are you seeking the means to fund your side projects or business ventures? Do you want to be able to assist others after you hit an investment milestone?
You're explaining why you're investing by generating a desire to succeed.
Avoid "get-rich-quick" schemes. Expect long-term results
You know what they say: "Easy come, easy go." When you start investing, you will find many opportunities, many people promising you that you can get rich immediately. And no, you can’t. Investing is a slow process, or it should be. You could take a risk and get a lot of money, but you will probably lose it as quickly as you earned it.
Get-rich-quick schemes are also related to emotional investing. If you want to make a stable income from investing, you must act on facts and data. Investing requires you to gain a lot of knowledge and have perseverance. Stick to a strategy, and trade purely on the basis of facts and data.
Once you've invested, sticking with stocks for the long term is the best way to succeed. With so many stocks on the market, and so many new chances, keeping invested in the same stock for a long time can be challenging. However, a long-term perspective can produce a positive outcome at the highest certainty.
Give your stock portfolio enough time to grow out if you want to be a successful stock investor with the right investor Mindset. All you have to do is buy unique companies at a favorable stock price, and wait for them to grow enough to produce results.
By the way, the above also applies to other forms of investing, such as investing in real estate. This too requires a lot of time and patience. Buying the first five properties can take as long as 15 years. But buying the next 5 properties can be done in 5 years. And before you know it, you have a real estate empire. This is because investing works according to the "snowball effect".
Education is the best investment
When it comes to investing in the stock market, it's essential to spend time expanding your knowledge and experience. Unfortunately, I still come across people who bought a stock based on opinions. You know: at a party you hear someone talking fanatically about this new interesting stock. Sounds interesting. You buy without looking at financial valuation or even business strategy. Or in other words: you throw a dart at the dartboard blindfolded. In many cases, the arrow will never reach the board.
The right Mindset for investing involves investing only in what you know. By definition, this expands your circle of influence, since knowledge gives power. Read financial statements, annual reports, and newsletters to have a better understanding of how the market works. These books can assist you in becoming a better investor.
Develop perspective: Always have a plan
When investing in the stock market, it's essential to have a strategy for future growth based on your investment objective, expected return, and risk tolerance. Before attempting to create an investor's mindset, it's crucial to assess your existing financial condition and have diversification plans in place to meet your investing goals.
Also know that things change. What you want to achieve at 30 seems irrelevant when you are 60. Therefore, be flexible throughout the journey. Determine the final destination, and annually evaluate whether you are on the right course. Adjust the course when necessary.
A strong investment strategy also helps develop an investor Mindset. Successful investors operate on facts and data. We use strict selection criteria before we buy stocks. This is also part of the strategy. And by frequently testing stocks against the selection criteria, your Mindset for successful investing develops.
Accept failure and keep going. See losses as opportunities to learn
Even the most successful investors have experienced failures. But it's the fact that they've embraced their mistakes and moved on with the lessons learned that makes them stand out. Because of this, they have developed a stronger investor Mindset.
Understanding that losses are an inevitable element of any investment process is the key to success.
Take action and never give up
It's worthless to have an investing strategy if you don't execute it. You'll notice improvements gradually but progressively after you put it into practice. You won't achieve all of your goals right immediately, but by acting, you'll remove any concerns you might have about yourself or your strategy. Keep going. Never give up.
Conclusions about Investing Mindset
Like investing in general, developing the right mindset for investing is a process that takes time. It won't occur overnight, but you need to be working towards it to invest successfully. Anyone can have a fluke. But a strong investor Mindset is a crucial prerequisite for successful long-term investing.
The most important thing is to control your emotions, so they can't influence your investment choices. When it comes to investing, being cold-headed will allow you to see things clearly and make the right choices.
If you are just starting, what you need to do is to learn as much as you can. It may sound tedious to some, but doing your research will protect you from preventable losses in the future. Research enables you to act on knowledge, facts and data.
As with anything in this world, patience and persistence will take you far. Perhaps beyond what you think would be possible.
This is why the right Mindset for money investing is so important. Be positive, think in terms of opportunities and be patient. Do you have any additional tips to improve our mindset? Let us know in the comments below.