5 Steps To Become An Investor As An Indiviual: Proven And Tested

How to Become a Successful Investor

Becoming a successful investor may look simple on the surface, but there’s a lot of effort that goes into finding the right stocks and knowing which ones make sense for your portfolio. Keep these steps in mind when constructing your portfolio.

1. Understand Your Goals

Success will look different for every investor. Although it’s popular to view success as beating the market, other investors define success based on the cash flow they receive from their assets (see more on income investing below). Some investors don’t want to beat the market but prefer stability and dividends.  Remember that you are unique. 80% of investors believe that advice tailored to their personal interests and goals will lead to better financial outcomes.

Investors save for different goals based on their current and future needs. It’s popular to save for retirement, but some investors save money for a vacation. When you have a shorter time frame, it makes sense to buy stable companies with fewer risks. Investors with long time horizons usually purchase growth stocks knowing they have more time to ride the ups and downs of the markets.

2. Decide on the Scope of Your Investments 

There’s more to investing than stocks. You could buy real estate, get involved with private equity or buy and hold collectible sneakers. But it doesn’t make sense to try out every possible type of investment. Successful investors define their scope and know what investments they want to explore. Stocks offer a great starting point for investors because of their affordable prices and liquidity. 

3. Learn the Fundamentals of Investing

The best investors learn about their assets before investing and keep tabs on them over time. They conduct research before entering a position and monitor the latest news and earnings reports of companies and funds. Long-term investors focus on company fundamentals. They comb through publicly available documents, like quarterly reports, balance sheets, valuation metrics and comparable investments before making decisions. Researching a company’s current growth trends and future opportunities provides a starting point. This information, combined with valuation metrics, can help investors determine whether a company is undervalued or overvalued.

Even with the same metrics and data, two investors can have different opinions. New investors should consider learning about the fundamentals and then decide what they interpret as overvalued or undervalued.

4. Identify Your Investment Strategy

It’s common for investors to begin their portfolios by purchasing companies they know. They look at companies they use as consumers and stick with what they know. As investors get more involved, they branch out into other companies and develop more detailed strategies. An investment strategy allows your portfolio to align with your financial goals instead of going for the vague goal of making more money. 

Growth Investing

Growth investing is for investors seeking the highest possible returns. Growth assets perform the best during economic booms because of strong revenue numbers and demand for these assets. But growth stocks can rack up dangerously high valuations that can come tumbling down during a correction or economic downturn. It’s possible to find undervalued growth stocks, but these assets become more difficult to find during bullish economic cycles.

Value Investing 

Value investors look for a margin of safety with each asset. These investors don’t want to overpay and will sit on the sidelines if they don’t like the valuation. A focus on valuations causes value investors to miss out on euphoric rallies, but they don’t get caught up with dramatic market downturns. Value investing requires doing a little more homework to find promising companies that the market has overlooked, but these can become top-performing stocks once the market catches on.

Income Investing

Not every investor wants to beat the market. Income investors load up on dividend stocks and other assets that generate cash flow. These investors hope that their dividend payments will become large enough to cover living expenses in the future. They don’t want to worry about selling assets to cover basic expenses or running out of cash. Income investing doesn’t generate the highest returns, but you can calculate how much you need to save to earn cash flow that exceeds your living expenses.

5. Open Your Investment Account

After learning the basics and brainstorming your strategy, it’s time to take action. Stock investors need to open an investment account to get started. If you want to buy real estate, you will have to look for properties that match your criteria and invest accordingly. When looking at brokerage accounts, you should look at their fees, perks, investment choices and account minimums. You should also check online reviews to see whether the brokerage is trustworthy and has a good customer support team.

6 Tips for New Investors 

Now that you know the steps to get started and embark on the journey to becoming a successful investor, here are some tips for building momentum.

Stay Consistent

Investing is a long-term process that involves many ups and downs. Stay consistent with your portfolio contributions, market research and commitment to learning. Giving up on a market downturn can lock you out of great gains in the years ahead.

Diversification

A diverse portfolio has fewer risks. If one asset underperforms, your other investments can minimize the impact. Portfolio diversification also lets you tap into more opportunities. Some income investors allocate a small percentage of funds to growth stocks, knowing these assets may outperform their portfolios in the short term. An income investor in this situation could decide to sell the growth investments at a profit and put the money into dividend stocks or hold onto the growth assets for a longer period of time.

Curb Your Emotions

Emotions can get in the way of effective stock investment strategies. It’s easy for new investors to get discouraged if their money loses 10% of its value in one month. While each asset carries a different set of risks and potential benefits, red days can tempt investors into leaving too early. A string of losses can also tempt an investor to engage in revenge trading. Revenge traders make riskier trades in an attempt to quickly recoup their losses, but this can put them much deeper into the hole.

Keep Learning

The best investors never stop learning. Even when they have achieved their financial goals, investors continue to do research and monitor their holdings. The pros continue to learn, and it’s even more important for beginners to read, watch and listen to educational resources centered around investing.

Seek Expert Advice

Investors shouldn’t rely on the media or experts to formulate their opinions. The best investors do their own due diligence and determine what they want in an investment. After determining these details, it then makes sense to seek expert advice about picking investments. This approach combines thinking for yourself while also assessing other people’s suggestions. Investors can learn from seasoned professionals without interpreting an expert’s advice as dogma.

Use Powerful Tools 

Investors have more tools and resources now than at any other point in history. While the internet’s impact can’t be understated, many tools developed within the past few years have provided even more advantages. Investors can now use artificial intelligence (AI) and other resources to make better investing decisions. AI investing assistants, in particular, provide quick access to stock metrics and even pinpoint unique investment ideas based on your personalized criteria. AI assistants can also answer your questions and provide personalized guidance throughout your investing journey. Experts believe these tools are positioned to become the go-to intelligence resource for retail investors. 

Embarking on Your Investing Journey

Investing gives people the opportunity to earn more with their money. While some investors try to beat the market, others benefit from cash flow that makes everyday expenses easier to cover. If you are getting started and want a useful companion to answer your questions, an AI-assisted investment tool can be a great option. Investors have more resources and choices than ever before, and it’s increasingly important to take advantage of the right resources.

Frequently Asked Questions