Proverbs 21:20 (ESV) – “Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.” Do you live this and do your children and grandchildren see this in your life choices? Your habits often become the habits of your children. What do you think about that?
A successful investor has at least these six good habits and an unsuccessful investor does the opposite. The good habits are:
- Have a plan and use it.
- Don’t spend every penny you receive.
- Ignore the crowd. Stick with your plan. The crowd doesn’t plan.
- Don’t put all of your eggs in one basket.
- Don’t spend more for an investment than it is worth. Keep maintenance costs low.
- Think about others. This isn’t an exercise to build a bigger barn or take 365-day vacations. Put this in the plan.
Most people don’t even do the first habit. As a result, they don’t know where they are going and they don’t have a plan to get there. Set a goal and then think about how you will get there. If you need help with this, let me know. I have a written plan and I can share it with you.
The second habit is also hard to do. Most who receive one dollar spend more than a dollar. In other words, they buy stuff with money they don’t have and then pay more-and-more for what they bought by paying interest. Successful investors spend no more than $.80 of every $1.00 they receive and give away or invest the rest.
The crowd is generally wrong. Watch what they do with investing and do the exact opposite. If they are panic selling, you thoughtfully buy more. If they are buying like fools, be careful. They might be gambling.
Diversify. Don’t put all your money to work in a single investment. Fools do that.
If you keep paying for the investment you bought, you are giving away some of your profits. That is called the expense ratio. Mutual funds have notoriously high expense ratios. Why buy them if you can buy a good or better investment and pay less over time?
Your success is not for your comfort or status. Think about others. If you care about your family you want to take care of the family. If you care about eternity, you will want to invest for eternity.
Conclusion: Here is the formula for failure: Don’t plan. Spend more than you earn. Follow the crowd. Buy a single investment. Keep paying someone else for something you already own. Hoard and think you will be happy by having more-and-more.
Next step to consider: Read John Bogle’s “The Little Book of COMMON SENSE INVESTING.” Read the Fidelity link I’ve included at the very least.