Most successful investors do things a little different than the average investor. These little things can be the difference in never having huge losses or losing 30-40% every time the market has a major correction which happens every 6 years on average. The first rule is successful investors have a plan when the market goes up and they have a plan when the market is down. They know before they invest their first dollar how much they can afford to lose and how much they are willing to lose. Until you can answer those two questions you will have a very difficult time with your investments.
The second rule is successful investors do not get emotional with investing. This can be very hard because people do get emotional about their money which can lead to bad decisions and amazingly they repeat this pattern over and over. The reason to invest in the stock market is to make money but many investors don’t have a plan when the market is up. If they do not need the money they will not sell and take profits because they do not want to pay tax on the gains and then have to figure out where to invest again. Also most investors do not have a plan when the market is down. They just hope that whatever they have lost will come back which is not a plan but just a hope. On average it takes 6.5 years to recover from a 20% or greater correction in the market so they stay on this roller coaster because without a plan that’s all they know.
The third rule is they do not get greedy. They now how much profits to take and how much they can afford to lose and are willing to lose and they stick to that. This helps explain why over the last 20 years the overall market has returned 8.7% but for the average investor that number is 3.1%! The reasons for this are emotional investing, fees, and not matching your risk tolerance with your allocations. Do you have a plan? Do you know how much you can afford to lose? How much you are willing to lose? If you cannot manage your money without getting emotional or have a hard time putting together a plan for when the market is up or down then you need to have someone manage your money for you. A qualified portfolio manager will develop a plan and will help you identify how much you can afford to lose and are willing to lose and will keep the emotion out of investing and stick to the plan.
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