Knowledge. Shared Blog
December 2019
Seven Habits of Successful Investors
Investing for retirement, education or another long-term goal requires discipline and dedication. Responsible, effective investors prioritize savings and living within their means. They know some of the quickest ways to derail progress include spending money that is earmarked for investing, trying to time the market or making ill-advised money moves based on the headline of the day.
While it’s impossible to predict the future, people who typically have the most successful outcomes have similar habits and common traits. Here are seven secrets of successful investors.
1. Have an investment plan and stick to it
Successful investors are diligent planners with a common starting point: a written investment plan. “Writing out an investment plan, while simple, is a very impactful way to better understand and adhere to your stated goals, says Ben Rizzuto, Janus Henderson’s Retirement Director. “Writing down your risk tolerance, financial goals, how you plan to spend money and other financial details, and then reviewing this periodically, can ward off bad decisions.”
Having such a plan in place helps you to stay on course during times of short-term volatility and to avoid jumping in and out of the market. That’s important: A 2018 survey by financial market research firm DALBAR, Inc. found that investors who tried to time the market lost more than twice as much as the indexes.1
2. Prioritize investing
Competing demands for financial resources can make regular investing a challenge, but you’re more likely to achieve your long-term goals when you make investing a priority and view it as a must-pay monthly bill. Mr. Rizzuto has found that the best way to put aside money consistently is by automating your savings. “Set up your savings just like you auto-pay your bills,” he suggests.
3. Diversify
While it may be tempting to pick a “hot” stock for potential growth, seasoned investors know that diversification can be paramount to meeting financial goals. One way to diversify your portfolio is to include a wide range of asset classes with exposure to domestic and international markets. This approach helps hedge against risk by using a variety of financial instruments that may react differently to market events.
4. Honor your risk tolerance
Some people lose sleep thinking about their investments, while others invest their money without much worry. Regardless of what your risk personality is, you should be true to yourself and craft a long-term investment plan that honors your preferences. Tune out the daily chatter, advice from friends and headlines, and be confident in your approach.
Risk tolerance changes throughout adult life. “Your risk appetite at the beginning of your career is different than at retirement,” Mr. Rizzuto says. “Consider reviewing your risk tolerance and overall financial plan in connection with major life events like a child going away to college, retirement, widowhood, divorce or other significant changes.”
5. Keep expectations realistic
Instead of setting your expectations based on an era that was an outlier—such as stock returns in the 1990s—consider what the investment class has done over long periods of time. Since its inception, the average inflation-adjusted return of the S&P 500® Index, which reflects U.S. large-cap equity performance and represents broad U.S. equity market performance, is 7%.2 There will be negative returns in some years as well as periods of slow growth, but generally the best way to weather them is to stick with your investments for the long term.
6. Manage, but don’t micro-manage
Your portfolio isn’t a “set it and forget it” matter. Many experts recommend checking your long-term investment portfolio quarterly or annually and rebalancing it yearly. Daily monitoring and investment decisions are best left to your funds’ portfolio management teams. Checking your portfolio too often can have fallout. One survey by SigFig found that those who check their portfolio twice a day earned up 0.4% less than the average investor, largely due to trading too frequently.3
7. Invest with a professional team
Professionally managed investments can add the power of research, expertise and experience to your plan. By opting for funds headed by seasoned financial professionals, like those at Janus Henderson, you’ll have a knowledgeable team working to make the most of every dollar you invest. Choosing funds with strong long-term track records frees you from the challenges, time commitment and pitfalls of trying to manage your investments on your own.
As you set financial goals for the new year and the new decade, make these habits part of your investment plan. 2020 is a great time to establish or renew your commitment to long-term investing, establishing the good habits that will strengthen your long-term financial well-being.
Start planning today with our online goal planner
1 Dalbar, “Average investor blown away by market turmoil in 2018,” Press Release, March 25, 2018. https://www.prnewswire.com/news-releases/average-investor-blown-away-by-market-turmoil-in-2018-300817353.html
2 Nerdwallet, “What is the average stock market return?” September 3, 2019. https://www.nerdwallet.com/blog/investing/average-stock-market-return/
3 SigFig, “Taking stock of your portfolio: How much is too much?” September 25, 2014. https://blog.sigfig.com/index.php/stock-market-trends/taking-stock-of-your-portfolio-how-much-is-too-much/
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