- \ Gerard Gruber
- April 20, 2023
Would you be surprised to learn that most wealth isn’t the result of hard work? It’s the result of being a shrewd and disciplined investor. This seems counterintuitive, because one of the basic claims of capitalism is that people are...
Would you be surprised to learn that most wealth isn’t the result of hard work? It’s the result of being a shrewd and disciplined investor.
This seems counterintuitive, because one of the basic claims of capitalism is that people are rewarded in line with their effort and productivity. The beauty of a capitalist economy, we are told, is that people who work hard can get rich.
But earning a high income and building wealth don’t always go hand in hand. In fact, the top five careers of millionaires include: (1) engineer, (2) accountant, (3) teacher, (4) management, and (5) attorney. That’s right—teachers who notoriously DO NOT earn a high income.
That’s because wealth isn’t the result of hard work or even a high income, it’s the result of patience, dedication, and the willingness to stick to a long-term plan for future reward.
In order to help you put your money to work for you in the smartest ways possible, we’ve compiled a list of the top habits of highly effective investors and how working with a financial planner can help you master all of them.
- They Use Time to Their Advantage.
Time is one of the greatest assets an investor can have, primarily due to the power of compounding. Compounding, often referred to as the “eighth wonder of the world,” is the process by which an investment generates earnings not only on the initial principal but also on the accumulated interest or returns from previous periods. The longer the investment horizon, the more significant the impact of compounding becomes, leading to exponential growth in wealth. Even average returns, compounded over a long time period, can lead to superior overall results.
- They Save More Every Chance They Get.
Saving is a fundamental pillar of wealth accumulation. You can build wealth without a high income, but you have no chance without a high savings rate. Saving is a variable that an investor can manage, as opposed to numerous uncontrollable factors like stock market performance, interest rates, or the occurrence of economic downturns.
- They Maintain a Level Head in Good Times and Bad.
Effective investors maintain a long-term perspective and resist the temptation to react impulsively to short-term market fluctuations. They understand that market volatility is a natural part of investing and that time in the market is more important than timing the market.
- They Keep Their Emotions at Bay.
When equity markets are rising, it can be easy to get caught up in the excitement. When markets are falling, it may be difficult to believe that the down times will eventually end. Of course, emotions are not usually an investor’s best ally. The best investors can put emotions aside when they make portfolio decisions.
- They Manage Risk with Rebalancing, Asset Allocation, and Asset Location.
Smart investors know that diversification is key to mitigating risk and optimizing returns. They allocate their assets across a variety of investment types such as stocks, bonds, real estate, and even cryptocurrencies. According to a study by Vanguard, a well-diversified portfolio can reduce risk by up to 50% without compromising expected returns.
- They Accept That Markets are Inherently Volatile.
Savvy investors understand that market volatility is par for the investing course. It is, in fact, a permanent fixture in equity markets. However, volatility is what allows equities to be one of the greatest generators of returns of any asset class over the longer term. Throughout their history, equity markets have witnessed remarkable upward trends, like the one experienced in 2021, as well as numerous challenging downturns. It’s how you react to market movement that makes all the difference.
- They Seek Professional Advice.
Highly effective investors understand the value of professional financial planning and advice. They recognize that a knowledgeable financial advisor can help them master the other 6 habits in this list—saving early and often, maintaining a level head in good times and bad, rebalancing and mitigating risk, and remembering that even the most volatile markets have historically come back stronger to reach new highs.
Now that you’ve learned the top habits of highly effective investors, it’s time to put them into practice. By partnering with our experienced advisor team, you can receive personalized financial planning that will help you become a more effective investor and reach your financial goals. Don’t wait – schedule a call with Harbor West today.
This information is for general purposes and is not intended to provide specific investment advice or recommendations. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Individuals should always consult their own financial or tax advisor regarding their specific situation before acting on any information provided. Harbor West and Geneos Wealth Management, Inc. do not provide tax or legal advice.
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