William Shakespeare said it best in his most well-known play, Hamlet: “To thine own self be true.” This most excellent advice applies in most areas of our lives, including the realm of personal finance. The key to finding success in your investment strategy may lie within…within yourself, that is.
Find out now: How much do I need to save for retirement?
If you want to be more successful as an investor, you should start by getting very personal. Stumbling blindly into an investment strategy, particularly one that is not designed with your very specific goals and circumstances in mind, is a recipe for financial disaster. However, investors who make careful decisions about their investment strategies by considering their specific needs with honesty and clarity will likely be more prosperous. Before you start a new investment plan, or if you would like to assess your current strategy, take the time to take a personal inventory of your financial situation and goals.
What are your goals?
It is likely that a public schoolteacher may have different investment goals than the CEO of a Fortune 500 firm. For this reason, investors should be careful about taking generic financial advice. There is a wealth of investment and personal finance information available on the Internet, but be sure to guard against taking the wrong recommendations for your situation. You may want to consult a Certified Financial Planner in order to structure a plan that is right for your financial earning power.
When creating a financial plan, be as specific as possible with your goals. CNN’s Money101 offers a list of considerations for setting your personal financial goals; this list is a great starting point for the amateur investor.
How strong is your investor stomach?
In considering how to invest, you must also be honest with yourself about how motivated you are and how much you are willing to risk. If you are not the most gung-ho of investors, be careful about creating an overly aggressive investment strategy. Just like an extreme diet, an overly rigorous investment strategy may ultimately do more harm than good if you do not have the will power (and financial means) to follow it.
Analyze your personal aversion to risk in your investment strategy. If you lack the financial stoicism to tolerate ebbs and flows in the market, you may have a difficult time withstanding the market’s hard times without panicking and pulling a “take the money and run” type exit.
The theory of behavioral finance helps explain why some investors make rash or ill-advised decisions, often wreaking havoc on the market itself. Much of the market’s volatility can be explained by the effect of individual investors’ decisions to react or stand their ground. Bloomberg shows how major market swings are related to individual investors’ decisions.
Walk the investor walk
Another factor you must consider is whether or not your lifestyle choices are in line with your investment strategy. If you have decided that a long-term goal of yours is to retire at a young age and do lots of traveling, you will need to enact a fairly aggressive investment and savings strategy. This likely means you will need to cut down on travel expenditures and luxury items in the short term in order to meet your long-term goals.
What about your partner? Are your partner’s financial goals in line with your own? If not, you may run into trouble down the line. Make sure that you share the same – or at least, a very compatible – vision of what success looks like. Citibank reports that financial advisers may see more couples struggling to come to agreement over investments as women continue to gain ground toward wage equality.
If you hope to develop a more fruitful investment strategy, you should start by getting very personal with your financial planning. Rather than taking one-size-fits-all advice, make sure you seek financial insight that matches your specific needs. Get specific with your goals, decide how much risk you can tolerate, and then make sure your lifestyle matches your plans. Following these steps will ensure that your investment strategy is in line with your personal needs and hopefully lead to greater investing success.