WHAT ARE THE SECRETS OF SUCCESSFUL INVESTORS?

September 29, 2020

Matt Richardson

I thought it would be a good time to put a reminder out about what are the common characteristics of successful investors.

None of what I have listed below is rocket science and none of it will be new or a surprise to anyone who reads this.  The surprise however, is how often these points are overlooked.

There is a growing tendency for those trying to accumulate wealth to do it in an extremely short time frame.  We’ve become an impatient generation.  Examples might include borrowing a huge amount to invest in a property deal, or investing in a business without doing your due diligence, or getting a tip off a mate about a mining stock that’s about to “go through the roof”, etc, etc.  We’ve all heard these stories and we’d all love to be the one to be lucky enough to “get rich quick”.  But for every investor who finds wealth in a short time-frame, there is a large number of investors who have financially put themselves back a few years due to a lack of discipline, research and common sense.

These disasters can easily be avoided.

So over the years, what valuable investing lessons have we learned?  A selection of points, in no particular order, are below:

1. Spend less than you earn;
2. Pay yourself first – get in the habit of using a set portion of each pay and setting it aside to invest (Read “The Richest Man in Babylon” by George S Clason);
3. The best time to invest is yesterday, today & tomorrow. If you wait for the “perfect time” to invest, you will be waiting a long time and you won’t have started;
4. You can get wealthy slowly, but you can go broke quickly, so if something seems too good to be true, it normally is;
5. You will lose on some investments during your lifetime, it happens, so don’t be afraid to cull them and move on. Don’t keep a bad investment because “it owes you money” if there are better alternatives;
6. Insure your assets, but especially your future income earning ability (via income protection insurance), hopefully it is the biggest waste of money in your lifetime and you never have to make a claim;
7. Reinvest your returns and let compounding take over. Compound interest is the 8^th wonder of the world (Example – a $1 all up bet on Winx’s 27 wins would have netted you over $45,000!).  Please note – this is CERTAINLY NOT a recommendation to open an online betting account!
8. Understand the Rule of 72.  If you don’t know what it is – Google it;
9. Treat your investing seriously like a business, measure it regularly (monthly).  If you are disciplined in doing this you are less likely to fail as you will find out quickly whether you are not saving enough, not disciplined and/or not investing well;
10. Set yourself goals and targets. Reward yourself when you achieve them;
11. When assessing an investment opportunity, ignore any tax benefits.  The investment should be able to stand up on its merits and any tax benefit derived should be treated purely as a bonus;
12. There are risks when investing in all asset classes (cash, fixed interest, shares, property), you need to understand these risks before you invest;
13. Understand superannuation is an investment vehicle only, not an investment.  You have choice as to how your superannuation is invested;
14. Negative gearing and generating tax benefits are irrelevant if the investment is generating negative after-tax returns.  Understand what needs to happen for these investments to succeed;
15. Borrowing to invest just magnifies returns. Bad investments will magnify your losses, good investments will magnify your gains;
16. Invest in yourself, never stop learning.

Again – these are hardly secrets which have been hidden from the masses for centuries.   It all comes back to discipline, nothing more.

The more of these points you take on, the greater the chance you will be on the right path to becoming financially secure.