The 3 Things That Will Make You Better Than 99% of Investors

Written by The Dividend Guy on February 28, 2008

Number 1 Investor

Want to know the three things that will make you better than 99% of the investing population? It is not rocket science nor does is it require you to do anything out the ordinary. Here they are:

1. Start Investing Today

The sooner you can start investing the better. Don’t worry if you think you are too old or too young, the key is to start investing today. The reason for this is to allow compounding to work right away. Here is an graphic from H&R Block that explains compounding (a picture tells a thousand words):

Compound GrowthClick to Enlarge

2. Continue to Invest Through the Market’s Ups and Downs

The market is going to go up and down. The key is to not let your emotions through these ups and downs influence your investment decisions. By not acting on your emotions you will do better than 99% of investors out there. Take this quote from Peter Lynch into account:

Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.
—Peter Lynch, Worth (September 1995)

3. Diversify Into A Quality Asset Allocation

The two key items here are diversify and asset allocation and a properly diversified portfolio stems partially from your asset allocation. Diversification means spreading out your assets among non-correlated assets so as to spread your risk around. You do this by choosing an asset allocation that meets the objectives of your risk profile. It is the asset allocation of a portfolio that determines the future gains you can expect, as indicated in the following image which I have displayed many times before on this blog:

Asset Allocation Portfolio FunnelClick to Enlarge

Diversify your investments into a well constructed asset allocation and you will be investing than 99% of investors.

Summary

There are some basic things that an investor can do that will put them far ahead of the majority of investors. Start now, continue to invest, and diversify into a well constructed asset allocation. Simple tips but very powerful.

(Photo Credit: zeth lorenzo)


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4 Comments so far

  1. Another JLP Roundup—AllFinancialMatters February 29, 2008 11:34 am

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