The investing secrets of the wealthy. We could all use a few helpful hints from those who have achieved the levels the rest of us aspire to someday. The true players seem to look at things differently, see angles and advantages the rest of us don’t, and just seem to have an affinity for knowing about the next big thing before it hits.
Sure, these factors all come into play, but it’s more than just having vision. Investing like the top 1% incorporates simple logic and common sense practices of which you’re already well-aware yet might not always consider for whatever reason.
The wealthy don’t necessarily invest differently than you or I. Some of them are more willing to court greater risk and others shy away from the big score in favor of smaller sensible methods. The odds are pretty good that you may have already adopted some of these investment strategies and practices in your own portfolios but you’re not maximizing their effect or simply acting too late (or too early).
Getting to the stratosphere of the 1% is no easy task, but there are ways to do it. You don’t even need to be excluded from this elite group as long as you take the advice of those who have already arrived.
Investing means different things to different people and one person’s idea of wealth could vary wildly from another. There are those investors who put as great an importance on social issues, community investment, and the ethical track records of the companies in which they invest as they do on their returns and gains. Some investors take an aggressive approach to risks and diversification. It’s all about your personal goals and adjusting your investment strategies to reflect those objectives.
But no matter what it is that goals you’re trying to accomplish in your investment strategy, everybody wants to win and earn as much money as possible. Portfolios grow and thrive if they are well-tended and smartly devised.
The 1%’ers know this and they apply hard and fast rules to their investment methods with designs on getting the most bang for their buck. That’s why they’re among the 1% and the knowledge they have can help the rest of us get a leg up in the market.
We’re going to take a look at the investment routines and secrets that the most successful investors apply to their own portfolios to achieve long-term financial prosperity and wealth. Their advice can be quite beneficial in helping you reach your own goals. Some of this advice may be that critical hint and tip that you’ve been looking for to unlock your full earning potential.
Stop Getting Killed by Fees
Diversification is important, but not at the cost of high, out-of-control fees. Start putting a greater emphasis on mitigating costs when you’re seeking out investment opportunities.
Mutual funds and other vehicles that require active management usually come with more fees in order to pay those managers. You need to weigh the importance of devoting part of your returns to those costs versus how they perform in the market. It may not always be worth the price.
Whichever investment you consider placing your money, be sure to make a thorough assessment of the costs and fees that come with it before you jump in. Look deeper than their portfolio performance to get a better idea of the net gains for investors. This way you can be sure that you’re not giving up too much of your money for a service that isn’t providing everything you expect.
Don’t be Swayed by Sizzle
There’s a tendency for investors to go after brand names with more flash and sizzle. But those aren’t always the smartest investments. In fact, diversifying comes from finding those lesser-known companies that aren’t always in the headlines. Those under-the-radar corporations that everyone hasn’t heard of before can often bring you the best levels of performance.
The industries where you’ll find many of these smaller players are those that reflect typical everyday use. Investing in companies related to the automobile, pharmaceutical, and fuel industries are where you’re going to find some of your best trends. While everyone else is looking to put their money into the hotter stocks like Facebook and Apple, those investors are already taking on far more risk than necessary.
That’s the most basic tenet of investing, assessing risk and understanding how to minimize it. Turning your attention from style to substance is going to help you do just that and put the greater attention on diversification and higher returns.
Many analysts and advisers suggest starting your research with an eye towards finding those companies with a minimum market cap of just under $50 billion and a dividend yield twice the size of the S&P 500 yield. Once you track down a few of those then do your further due diligence into their strength and health.
A Word About Risk
The 1% know all about risk. Most of them have taken tremendous risks to get where they are today. However, not always in their investing strategies.
Truth be told, most of them try to avoid it as much as possible, particularly now that they are incredibly wealthy. You may think it would be the other way around since they have so much wealth at their disposal, what would it hurt to be a little riskier now?
The 1%’ers can afford it, sure. That’s where the difference between them and us lies. They’ve built a considerable nest egg and they are now just simply trying to protect. They don’t need to take big swings in the market because they’re not reliant on getting rich anymore. The 1% wants to remain there and preserve their wealth for future generations – and that doesn’t necessitate greater risk.
The remaining 99% are on the other side of the fence. We’re all trying to reach their level and that leads many of the wannabe’s to incorporate greater risk in a bid to attain wealth. Therefore, most of you are buying whatever is making the biggest splash that week and you’re not concentrating on the bigger aspect that the 1% understands best – diversification.
Risk is part and parcel of investing in the stock market, but navigating that risk by diversifying your portfolio effectively is to start emulating the routines of the wealthier individuals among us. The key is not to take on more risk than is necessary.
Know When to Let Go
Risk comes in many forms, one of which is knowing when to cut your loss on a stock. There’s that one investment that just continues to lose money. However, you keep telling yourself to hold it, the analysts are saying the same, your broker might even be saying it’s too early to dump out.
So you continue to wait for it to rally back around and it just won’t as it drops precipitously and before long it’s down by 25% or more. The 1% investor knows when it’s time to bail out. Do you?
Here’s the truth of the matter. It’s darn near impossible to know when that rally is going to happen, if it does at all. You want to minimize your risk? Then don’t double down on a bad bet as you watch your money dwindle away.
Trust your gut here. If a stock is on a death spiral hit the eject button and accept the fact that it’s time to get out. Letting your money stay in an investment that has become more of a wish than a plan is just another way of kissing your capital goodbye.
That’s not to suggest that rebounds don’t happen. Stocks rally back quite often. But here’s where the hard part comes in: how long are you going to wait for it to come around? How long have you already waited?
Even more important, there could be another better investment out there that offers a greater likelihood of return on the money you’re currently losing. You keep waiting to break-even and then you’ll sell. But you better know what that means first, because too many investors don’t really understand how to get to that break-even point and they end up losing more money.
Here’s a tip: the further it falls, the longer it’s going to take for it to come back. If we refer to simple mathematics we can get a sense of the reality you’re facing in that quest to break-even. If a stock drops by 10%, it’s going to require a gain of 11% to even out. Drop 25% and you’re looking at a 33% rebound. How about 50%? You’ll need that stock to rally back to the tune of 100%.
Now consider the performance thus far. Is it really going to jump back 11%, 33% or 100%? In all likelihood the answer is no and the quicker you are able to ascertain that fact, the quicker you can dump it and keep more of your money. If it’s a monthly dividend stock, the proof should become clearer even faster.
Fine Tune Your Goals
The 1% don’t invest willy-nilly. They put very cautious and thorough consideration into building investment strategies that fall in line with their particular financial goals.
The same thing goes for us in the 99%. You’re not going to know what those goals are until you take stock of all your assets. Only then can you start to devise a plan for investing.
Once you have that accounting of your financial situation, then start to think about your goals. Are you saving up for a big vacation? Do you want to have a child in the next couple of years? Maybe you just need some more money to fund a lifestyle change or you simply don’t want to worry about covering your monthly expenses as much anymore. Perhaps you’re ready to buy your first home.
Whatever your goals are, your investment strategies should reflect the best and smartest way to reach those intentions.
Diversification is Critical
It’s how the 1% manages risk and so should you. Diversification is the best method for investment because it ensures that your portfolio is always building wealth in some capacity.
That doesn’t mean you’ll always be seeing a return on your investments, it means you won’t always be losing so much at any time. Theoretically, at least. If you’ve diversified effectively then it should hold true instead of being a mere theoretical concept.
Diversifying means holding a variety of investments, stocks, bonds, commodities, cash, any collection of investment vehicles that demonstrate varied directions and rates of return. You want to avoid having too many similar investments with matching rates of return and performance track records.
That way, when one part of your portfolio is taking a loss you can be sure that you’ve selected diverse enough investments that other areas are on the upswing, thus softening the blow of those losses. If you have too many like-minded investments that are dropping, then you’re losing far more money than you need to lose.
Diversification is a way to help you weather those losses a little better and the goal is to have as many disparate, yet smart, investments as possible. That way you cut down on your risks.
The Long Term Approach
Smart investors among the 1% know that you’re putting that money aside for the long-term. When you come up with a plan for investing, the strategy isn’t typically meant to pay-off quickly. The real wealth is gained by leaving your money in the market, not with the fly-by-night approach.
That also requires you to be aware of your tolerance for risk. While we’ve discussed all the ways to try and mitigate and manage risk, there is still the very basic reality that putting your money into the market does involve some risk.
As you make your plans and strategies for investment, have a good idea of how much you can stand to lose should you face some serious downturns. In setting those goals we’ve already discussed, come up with a number that you’re comfortable having in the bank by the end of the year.
After you’ve established this crucial component to your long term approach, then you can start to select the investments that make sense under the parameters that you’ve set. We all know the more that you risk, the more you can make. But you also need to know what means for your unique situation first.
Select Stocks Wisely
Choosing your stocks requires careful consideration as to why you’re deciding to make that particular purchase. The 1%’ers know you don’t just buy into any old investment without some hard reasoning first.
Once you know why you want in on a stock or bond, that will help dictate your decision for holding it, buying more, or selling it down the line. The 1%’ers do their research and decide that getting in on an investment should yield some credible return and the price is fair at that moment. They also have some relative expectation of the direction it’s going to go in the future.
If the performance reflects your speculation and it rises, then you will consider whether to hold on it, buy more, or sell it off for a profit. The same holds true if the stock drops unexpectedly. While the 1%’ers may not blanche at a significant loss, it can turn the stomachs of us 99%’ers who have invested their life savings into these investments.
Before you make any rash decisions (and the urge will be there in both cases, good or bad), you need to remember why you bought those stocks or investments in the first place.
Keeping Emotions at Bay
The 1% know how to plan effectively when it comes to their wealth. Once they come up with a strategy they stick to it, deviating only in case of emergency or significant obstacles. They don’t let emotions or rash decisions come into play and you shouldn’t either. Since you’ve already made a solid plan for your investment strategies, you won’t need to rely on knee-jerk reactions to dictate how you invest your money or where.
Of course, much of this is far easier said than done. You’re putting considerable sums of money into stocks, bonds, various securities and funds, and there is a gut tendency to second guess yourself. You may feel a significant lack of confidence in your actions and in the whole investment idea altogether.
This is often made worse when you start to see the losses your portfolio is taking. Always remember that you made a plan before you started down this road and you need to stick with it. Warren Buffet didn’t panic when his shares started to dip. He made allowances for that through diversification of his holdings. A bad day today isn’t the end of the world and it could very well lead to a banner day tomorrow.
Here’s a tip that the 1% knows all too well: panic equals loss. Much like with that number we discussed coming up with for the end of the year, set similar limits and expectations on the performance of your stocks. This is the best way to keep emotion out of the equation and rely simply on numbers and facts.
If you set standards for the performance of each stock at the time you buy it, you take all emotion away and instead rely on triggers. These ground rules for investing will allow you to make a move on an investment only when you deem appropriate and not when the market soars or dives.
Exit strategies are important. Knowing what your Plan B is ahead of time will help you make the most money as possible so you can get closer to the 1% faster.
Always Ask Questions
Even the savviest 1%’ers need a little help from time to time. They all have good advisers to whom they can turn when they’re unsure of their next move. That’s right, the 1% don’t have all the answers and they’re not infallible, either.
That’s why they put good support systems in place around them. While you may not be able to afford a litany of financial professionals at your beck and call 24 hours a day, you can still get good advice at a reasonable price.
The 99% need someone on their side, too. Some of you may think you’re showing signs of naivete by having so many questions. The reality is just the opposite – the more questions you ask, then the more informed you can become in making the smart decisions on investing.
You don’t need to do this alone, nor should you. Going off on your own is a sure-fire way to lose more money over time. Whether you are new to the stock market and its many investment vehicles or you’re a seasoned veteran, it’s a smart strategy to constantly analyze what’s happening in the market. Always talk to someone who can break down market trends and make the confusing components to investing a little easier to understand.
Track down a respected investment adviser or broker who you can trust to show you the best ways to grow and manage your portfolio. There are many different types out there, some are obligated to look out for your best interests, like fiduciaries, while others will try to sell you products that may not be best-suited for your situation but for the clients who hire them to peddle these investment opportunities. Know which one you’re dealing with before you engage them further.
Our Final Thoughts
The 1% aren’t smarter than you. They’re no different, either.
However, many of them employ tactics and ways of thinking that are slightly more astute or better reasoned than those the rest of us might be applying to our investment habits. Hopefully some of these pointers will inform your strategies and enable you to find where you might be making mistakes or, even better, validate the choices you’ve already made in your investment strategies to reach the goals you’ve established for yourself.
Either way, you may not be able to reach the levels of wealth as some of the richest people in the world. However, you can certainly achieve your own dreams for success through smart investment and shrewd decision-making. These tips should be able to get you started on that path.
