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Anybody can invest. Open a brokerage account and purchase a couple of stocks, right?
No!
But what separates your everyday retail investor and the professional, successful investors?
Becoming an investor requires more work. Investing in common investment vehicles, such as in a publicly-traded company or real estate, you are undertaking an involved, longer endeavor.
Further, the bigwigs have access to resources many have never had. They also invest their effort and time into studying market trends and managing their portfolios to reduce losses and increase gains.
Read on to find out more about how to become an investor and achieve financial independence.
What is an Investor?
An investor supports a business venture to gain revenues higher than the initial funding. Investors will often support large initiatives for financial gain over an extended period.
Life as an investor involves putting money into an industry or business you expect to offer a profit. Some investment vehicles worth consideration include bonds and stocks, gold, mutual funds, mutual funds, speculating about foreign exchange rates, and real estate.
Individual investors invest in smaller quantities of assets with hopes of a profit. An institutional investor is a large entity, such as investment and commercial banks, mutual funds, and pension plan investing for their clients.
Types of Investors
Investor classification depends on risk tolerance, investment style, category, and aim.
Common types of investors include:
- Passive investors—They adopt a hands-off but long-term investment approach by building their portfolio with high-quality assets before rebalancing as required.
- Active investors—These investors are actively picking winners by selecting individual securities. Human portfolio managers run actively managed funds to optimize performance depending on the market conditions.
- Growth investors—This type of investor seeks opportunities they believe will increase.
- Value investors—The investor uses fundamental valuation metrics to invest in undervalued securities. Metrics include debt-equity, price-sales, and price-earnings ratios.
- Contrarian investors—An investor who buys low and sells high.
- Income investors—The investor generates a reliable source of income from their portfolio.
How to Become an Investor
Investing successfully is easy, but understanding the steps at the beginning will help stave off trouble later on. Here are eight steps to increasing your success odds.
Step 1: Identify Your Objectives
The first step to learning how to be a successful investor is defining success in words. Write reasons for moving money from a safe account in the bank into a high-growth but risky vehicle.
This step helps increase the chances of success when you understand why you are making the investment and acknowledge the capital may increase or decrease depending on the risk you are taking.
It is healthier to hope for the long term than to make unfeasible, unrealistic short-term goals. Long-term objectives give the investments time to perform, navigate the market’s volatility, or grow.
However, short-term goals will help motivate you and keep you accountable. But always have an overarching objective to keep you going forward while pursuing financial freedom.
Step 2: Identify and Research Potential Opportunities
After completing step one, objectives fall into income or capital growth categories.
Income objectives require an enormous investment in dividends, offering a healthy annual yield of about 1.5% to 4%. Bonds are excellent investment vehicles if you are looking for an income-generating venture. Bondholders earn regular payments and can decrease or increase in value.
Investing in a growth company can improve annual revenue quickly while representing a logical way of putting your money to work. Value stocks work the same because they trade at a discount but have the potential to rise once investors recognize their value.
Sites like Google Finance and Yahoo! Finance can help beginner investors research investment vehicles.
Step 3: Get Started Now!
Is “I want to be an investor” a constant thought? Learn from the best!
A successful investor will not pause and wait until they accumulate substantial investment funds. They start where they are with what they have!
The sooner you choose your holdings and invest, the more time your market has to ride out the market swings and increase capital and compounded interest. Start with making small recurring deposits regularly.
Step 4: Commit to a Specific Period of Holding
After choosing your first portfolio holdings, choose a broker, and select “buy.” Now is the time to put your money to work and become an investor! The holding period for each asset separates an investor from speculators or traders. Accounting principles define short-term instruments as those you hold for a year or less—an excellent baseline when starting.
Long-term holding means over a year, so choose a high-quality company to buy into. Many investors consider the long term as anywhere between five to 10 years.
Step 5: Monitor the Results
How much time you spend watching holdings depends on you. Investment movements happen quickly during trading hours and may consume an extensive amount of your time daily.
Obsessive checking in is ill-advised, as it can make you addicted to logging in to the brokerage account and watching the stock movement in real-time. Doing this increases the danger of making impulsive decisions you regret later.
A key step to becoming an investor is not tracking holdings daily. The furthest you should go is checking on the news for tickers you own for a possible important occurrence.
Consider reviewing your investments on Saturday mornings when your head is clear. Doing this will help you gain an overall picture of the position. Also, compare how the picks are faring against your objectives and make actionable, non-impulsive plans to research or tweak their positions.
Read quarterly reports, which the U.S. Securities and Exchange Commission (SEC) each publicly-traded company to publicize. Familiarity with the quarterly reports helps enhance decision-making, so you are less reliant on the opinions of friends, investment pundits, and analysts.
Step 6: Celebrate Small Wins
About 70% of the U.S. population suffers from imposter syndrome. These are a collection of inadequacy feelings, even when experiencing success.
Dismantle the notion by focusing on the small wins and future opportunities; instead of the inevitable losses. Your trying means your financial future is brighter!
Wrapping Up
The how to become an investor steps above will help you avoid beginner mistakes. Investing without research or on a whim are traps you want to avoid. Use the power of putting money to work responsibly and you will achieve your financial freedom objective!
