It’s absolutely true when they say that investors have personality types. The personality types usually are defined by the habits an investor has adapted over a period of time, usually because of the environment and several social situations that you as an investor, might have gone through. Investing habits can vary from person to person, but emotions, family conditions, social attributes can all heavily contribute – making all investors unique in some way or the other. However, there is a major difference between a group of average investors and with a group of financial investors. Grouping investor types usually makes it easier to identify the troubles and how we can find solutions to support each group and their differences.
Common habits of an average investor
Being an average investor isn’t necessarily a bad thing. The fact that you are investing and have plans for your future is always a great first step towards the betterment of your financial situations. The average investor usually ends up attaining far fewer returns than expected, simply due to the fact that there are emotions involved.
An article by Research Affiliates highlights the simulated results from throwing darts at stock pages in a newspaper. The study established that a monkey can outperform the index by 1.7% per year since 1964. One of the reasons why this might have been possible is because there are no emotions involved with the interactions between the monkeys, the darts and the stock newspapers. This finding actually has nothing to do with darts or the monkeys, but these companies in stock newspapers actually outperforming the market over the period of time when this experiment was held.
The same applies to any kind of investment. When there are emotions involves, investments are usually led by fear. Fear leads to investments being made in a time where the markets are at a rise, which means that an average investor would buy at high market value rather than when the market is low. One of the other emotionally driven decisions, when they sell when the market is not doing so well, due to the fact that they think it is a bad thing, or they just lose trust in the market.
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The main rule for investments is to buy low and sell high. It is the way that investors usually benefit from capital appreciation when they sell their properties above a certain value point. Sometimes, even their friends and social circle can be a big influence on them, since they see them benefitting out of such a venture, but they themselves end up falling into a pattern where the returns are not necessarily beneficial in any sense.
Common habits of a financial investor
A financial investor can usually make smart money decisions for themselves. The best thing that can be done, or is taken inspiration from a financial investor, is setting investment rules for yourself. The reason that financial investors are successful with their investment goals, is because they invest for reasons which are completely besides an emotional or social environment. This requires discipline, regularly updating yourself on a financial education level and being aware of your own needs all at the same time.
Invest for passive income. The reasons for which you are investing, are really important. Most people enjoy investing in assets like Real Estate because the returns are quite attractive, along with the fact that they are aware that an amount will surely be in their bank even if they are not doing anything. Passive income is important so that you are not stuck with the risk of not having any other source of income in case your primary source of income is at stake and definitely helps to balance out the risk.
Look for deals
Look into sources that make investments accessible. For example, Real Estate Crowdfunding can be a great deal for someone who hasn’t invested in Real Estate before and is testing the waters. The investment does not have to be large, and you can start earning small returns with the small amounts that are invested. It is important to understand that investments are not only for 1% of the rich population.