A smart investor is one who does things differently than others. However, markets are unpredictable. When the market condition is volatile, a normal investor can panic and liquidate their investments to recover as much as possible. Nevertheless, a smart investor looks for an opportunity in this failing markets.
Becoming a smart investor does not require much efforts. A little caution and an alert mind can make all the difference.
Principles of smart investing
No one becomes a smart investor overnight. It is years of experience and practice that makes one a smart investor. However, there are certain principles on which a smart investor follows and practice it too.
Diversification
Most of the investors do not see any significant earnings due to the wrong diversification of assets. Diversification of assets can help to minimize risks involved with one fund. A smart investor understands that it is not possible to achieve a planned goal without diversification. Diversification maintains a proper balance of the funds.
In addition, at times, an investor has to change their diversification ratio in accordance with the market performance of any particular asset. Hence, a smart investor has to be flexible too.
Long-term investments
No investment has ever been successful when you have a smaller time frame. Everybody wants to be rich and falls into the trap of schemes like ’double your money.’ A smart investor would try to avoid this temptation of doubling the money and instead prefers the long-term investment, which would ensure stability with consistent returns.
The problem with short-term trading is that your investment should be able to sustain the difficulties of the market. That is not the case with long-term investments, where you hold the investment for a longer tenure, and wait for the profits to accumulate.
Decisiveness
A smart investor never makes any decision based on others’ opinion and suggestions, instead, they create an allocation based on their understanding and thinking. It requires the mind of a disciplined investor to make your own allocation and decide for yourself, which asset is more important to you in term of security, stability, and how much risk you can afford to take. For instance, investing in growth fund or high dividend-yielding fund makes more sense than going for an equity stock, which has not performed well.
Flexibility
If the market demands, a smart investor should be flexible enough to rebalance their portfolio or strategies to match the current situation. At times, it is easy to get carried away with the market flow. When market soars, a normal investor books their profits and when the market is down, they are on a buying spree. Trust a smart investor to not get distracted by the moving markets. During uncertain times, it is best to sit and analyze your allocation, and if needed realign the same. If you are flexible, then you can survive any changing markets.
One principle that a smart investor follows is to be consistent and calm in any situation. Their only policy is, markets may fluctuate, but their focus will not.
