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What you need to know to be a successful investor

The difference between being successful and less than successful with your investments many times comes down to understanding a handful of investment principles that have stood the test of time.  Following these few simple rules can increase your chances of becoming a successful investor.
What are the characteristics of a successful investor?
Successful investors have a long term view of their investments and they are armed with information regarding their investment choices. And most importantly, they understand their risk tolerance. These three items are the building blocks of successful investing.
Why is the long term view so important?
The stock market can be wildly volatile and getting in and out of stocks or other investments is not the easiest method for being a successful investor.  Often times this investment strategy leads to selling low and buying high which is the exact opposite of what you want to accomplish.  It is always better if you are not reacting to every change in the market but rather make decisions based on a solid investment plan.
What information should one know about investing in mutual funds?
If you are investing in mutual funds a few key pieces of information include: past performance over the last year, five years and ten years; the types of stocks or bonds within the mutual fund; the fees and other investment charges and most importantly, the tenure of the fund manager.  If the fund manager is new, the previous results might not reflect the new fund manager investment style or performance.
What should we know about individual stocks?
Look at the company’s financial performance of in the past, read industry reviews about the company’s future prospects and also gain an understanding of the outlook for the industry as a whole.  These all can give you a good idea of the long term prospects of holding this stock in your investment portfolio.
Is there any other relevant information?
Yes, two, the stock price movements over the last 12 months as well as the price to earnings per share ratio.  Both of these can give you a good indication of the recent performance of the company and the value there might be in the stock as an investment.
Why is understanding one’s risk tolerance so important with investing?
When individual stock prices or mutual funds are falling, it can be very tempting to bail on the investment.  This can be a losing strategy for long term success.  If you know your risk tolerance, you can choose investments that have less volatility and be more comfortable with riding out market downturns.
Getting information seems to be an important part of success, how can one become more informed?
There are several sources for information that one can use.  First, you can do the research yourself looking at company filings and reports.  A second option is to use an online investment service that provides information and ratings on all types of the investments.  A third option is to work with an investment advisor who will do the research for you.
What type of advice do successful investors avoid?
They always avoid the advice from the neighbor down the street with the hot tip on a stock or the crazy uncle who has the latest get rich fast investment.  If it is too good to be true, it probably is.  Always do your own research.

Posted: 10/25/2015 with 0 comments

Categories: Investments, Money Matters

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