What Makes a Good Investor?
In a 2011 interview about what makes a good investor, Warren Buffett said, “The good news I can tell you is that to be a great investor you don’t have to have a terrific IQ. If you’ve got 160 IQ, sell 30 points to somebody else because you won’t need it in investing. What you do need is the right temperament.”
So what exactly is the right temperament? What are the shared characteristics of the most successful investors?
Well, before we get into traits of the most successful investors, we just want to be clear about what we mean by “successful investor.” We aren’t trying to define a successful investor as someone who has billions to invest and times the market for big money. When we say “successful investor,” we mean someone who can be patient, learn from their mistakes, and practice consistency and patience over the long term.
If you’re looking for an article about timing the market, you won’t find it here. If you want to learn more about investing for the long game, read on. (Though, of course, this isn’t to be construed as advice for your specific situation—and we suggest you discuss any ideas gleaned from this article with a financial planner.)
What are the Traits Shared by Most Successful Investors?
No one trait makes a successful investor. That being said, there are some observable trends, such as the fact that most successful investors are patient . They have the ability to see the long-term big picture over short-term market fluctuations and aren’t going to be swayed by the crowd.
That’s what Buffet means by temperament. He means waiting out bubbles and busts, taking the time to do your research, not being swayed by the crowd, and understanding that over 30 years, the S&P 500 generally gives good returns to those who are patient and smart. However, this doesn’t guarantee any returns in the future.
A lot of the characteristics of an investor come down to this temperament: How likely are you to be risk-averse or to tolerate market fluctuations? Are you impetuous or overly cautious? Our personality affects our decisions so much, in fact, that how temperament relates to investing has been studied over and over .
There are many people who believe your temperament or personality is simply something you’re born with, and some of us were born with a temperament suited for investing. But some actually believe different personalities lend themselves to different kinds of investing—if you’re impulsive or seek rewards it changes what kinds of assets you might be attracted to.
There’s even an argument that different styles of investing lend themselves to different generations—e.g. your view of the market is also a result of your history and what’s happened in your life.
Millennials, for example, tend to be skeptical of investing and save their money instead, because so many of them came of age during the economic downturn and were faced with high unemployment rates. How they view investing would be different from a Baby Boomer, but that doesn’t mean one is automatically better suited to be a good investor.
Knowing your personality and how you react to investment losses may help you temper your reactions and control your biases . (For example, if you know confirmation bias makes you prone to focus on only the information that supports your preconceived ideas, then you’ll be less likely to fall victim to that bias.)
The more important thing, rather than having one specific type of personality, is understanding all of the characteristics of investors.
Learning the Characteristics of an Investor
Most successful investors aren’t just born already investors. Over time, they cultivate the necessary characteristics of a good investor through practice and gathering knowledge.
Investing approaches will always vary, but it can generally help to have a base understanding of businesses, stocks, or bonds you’d want to invest in. That doesn’t necessarily mean you need an accounting degree, but you may need to be willing to do background research and, yes, even some math to understand what’s a good investment opportunity and what’s not.
Smart investors also might need to set investment goals—and then make decisions to achieve those goals. What do you want out of your investments? If your financial goal is to have a certain amount of money by the time you retire at age 60, for example, then you could consider a riskier investment goal is longer-term.
But, it might not make sense at the age of 59 to get swept up in some hot new risky asset that could pay off or could end up costing you all of your retirement savings. This also requires discipline and self-awareness of your risk tolerance and desires.
While any personality type has the potential to be a successful investor, it can help to be focused and methodical. That might mean double-checking your portfolio make-up and diligently keeping track of when it needs to be rebalanced.
Learning from Most Successful Investors
One classic investing adage is the sooner you start, the better. Even if you’re saving money towards your financial goals, investing could get you to those goals faster—especially when you factor in the inflation rate on your savings versus the rate of return on the market.
The sooner you start investing, then the sooner those returns can start accumulating their own returns.
Let’s be honest—many investors still want some direction from a financial professional. That’s because it’s hard. Nearly all actively managed funds—meaning those funds with money managers trying to buy and sell in order to beat the market—fail to beat the market .
One good strategy could be passive management with a portfolio made up of a mix of assets that meets your needs and goals. And of course, you may want to talk to a professional when getting started.
Considering SoFi Invest
With the help of a professional, your research on the characteristics of the most successful investors, patience, and diligently keeping track of your goals, you can be well on your way as an investor. You also consider opening a SoFi Invest account, where you can choose between active and passive investing.
Active investing means you’d be more involved in selecting and regularly managing your investments, whereas passive investing is more hands-off, and involves SoFi financial planners building and managing your portfolio.
SoFi can’t guarantee future financial results.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile.
Active investing via SoFi Securities LLC, Member FINRA /SIPC . Advisory and automated services via SoFi Wealth LLC, a registered investment advisor.
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