What Type of Investor Are You?

I consider myself a fairly analytical thinker that pretty much sees things as black or white.  When it comes to how people define themselves as investors, though, there seems to be a lot of gray area.  For me, it’s extremely simple…… you’re either a “Long Term Investor” or what I’ll call a “Day Trader”.   There’s no in between!

web-business_110009277-012914-int.jpgWhat exactly do we mean when we say Long-Term Investor or Day Trader, you say?  Basically, a Long-Term Investor is someone who saves for any long-term goal like retirement or a child’s education while a Day Trader actively plays the market in attempts to make quick profits.  (If somehow it wasn’t already painfully obvious, Day Trading is EXTREMELY risky!)

So assuming you’ve acknowledged you’re NOT a day trader and concede to the fact that you therefore must be a “Long-Term Investor” (or at least you should be), we can get to the point.

As a long term investor there are certain things you MUST understand:

1. MARKETS ARE VOLATILE – Investment returns don’t move in a straight line.  There will be ups and downs.  Always have been and always will be.

2. YOU CAN’T AVOID ALL RISK - The word invest itself means risk.  To invest means to engage in an activity which money is put at risk for the purpose of making a profit.  Even when investing in a CD you risk your returns won’t keep up with inflation.  And for that matter, keeping all your money in cash would all but guarantee losses every year there’s inflation.  Having said that, you can manage risk through diversification and other investment strategies.

3. CHASING RETURNS WILL COST YOU - Stick to your investment strategy! You have to resist making changes every time there’s news in the financial markets.  It doesn’t change your investment strategy and a well-diversified portfolio should reduce your risk in bad times and take advantage of gains in good times.

4. INVESTMENT SUCCESS IS NOT MEASURED TODAY, YESTERDAY, OR TOMORROW - If you measure investment success with each month’s statement you’ll not only drive yourself crazy but probably make foolish decisions, too.  As a long-term investor, success can only be measured by looking at the returns over long (very long) periods of time.

5. THERE IS NO “BEST” INVESTMENT, FUND OR ADVISOR – There’s no silver bullet when it comes to investing.  No single investment will outperform the rest ALL the time, and no Investment Advisor or Fund Manager will make all the right trades, ALL the time.  Again, performance over the long haul is what you need to be concerned with.

A long-term investment strategy should anticipate market volatility, inflation, and other things that can adversely affect the value of your portfolio. So unless your long-term goals change it doesn’t make sense to change the investment strategy.

Your success will no doubt hinge on how seriously you take “planning” for the future, working with an advisor to develop the plan, and STICKING to it!