Investing Mistake #1: Treating Investments Like a Part-Time Job and Not a Business.
“When a man tells you that he got rich through hard work, ask him: Whose?” Don Marquis
While you may be investing for a child’s education, a vacation home or retirement, the common ingredient for success really is the process, approach and mindset you bring to making investing a success. Take it seriously and you get serious results. If you are fearful, your results will reflect it. If you are a daredevil, your results may reflect that, too.
All your personal goals are important, aren’t they? You’ve worked hard for your money, didn’t you? So why not find a better way to make your money work smart for you?
Why Mindset Can Really Harm You
Too often, investors simply think that what and how they save won’t really matter. They don’t have enough money to make it worth it and they don’t have the time to really focus on the whole investing game. I know, life gets in the way when you’re doing other things and making other plans.
Thinking of this made me remember visiting an underground cave with my friends John and Lisa on a trip through the Blue Mountains. We entered the caves on a tour and saw all these fantastic, awe-inspiring formations created by the centuries of slow drips of water and mineral from the cave ceilings. The stalactites and stalagmites formed bridges and statues of animals and even formations reminiscent of the craftsmanship used to build the cathedrals of Medieval Europe. Small, incremental and consistent efforts produced such grand results. If it can happen in nature, why not for something like a college savings account?
Too often, investors simply throw up their hands and take the easy road. They do nothing, make no changes and for fear of making a mistake or because they don’t know who to trust, they avoid working with a professional.
They may hear the media report that a monkey throwing darts at a list of mutual funds or stocks may have beaten a professional money manager. Another favorite topic in the financial press is how most money managers do not bear their index. But on the other hand, other stories will focus on the fantastic results of quick trigger investment schemes of the day-trader variety.
Let’s face it: How well your investments perform from day to day will not likely make a big difference in your lifestyle now. But how well you plan and invest may determine if, how and when you can retire, build a legacy to pass on and do all the things that are on your personal “bucket list.”
Two Categories of Investors
So investors will fall into two categories: Those who focus exclusively on performance and those who focus on process.
Most investors, despite repeated warnings in small print at the end of the ads, will focus on past performance as reported by the popular press and websites. So despite the daily constraints on time because of family and work, these same folks will pick up an occasional financial newspaper or magazine or troll some financial websites and pick up a few ideas. They’ll see a Top 10 list of investments from last quarter or last year and then buy them because they performed well over some arbitrary time frame.
The Part-Time Investor in Action
Those who are more well-to-do or successful or affluent are either too busy making money to focus their time on investing or they believe that they have the skills to handle things on their own because they are successful in their careers.
I’m reminded of a woman I met on several occasions to discuss a way to bring some order to her investments. She was a single mom raising a teen and worked in a fast-paced, deadline sensitive business. Whenever we spoke, we were regularly interrupted by ringing phones and a buzzing pager. Although she barely had time for lunch, much less research basic investment concepts, she ultimately decided that she would go it alone and master an online trading strategy to buy and sell stocks and options.
If you’re a successful surgeon or restaurateur or engineer or banker, do you really think that the same skill set that got you to the top of your profession, will also mean you can invest the time needed to properly manage and protect your wealth – not just your investments, but the whole set of tax, asset protection, retirement strategy planning, credit and cash management concepts?
Highly successful people may have achieved enviable incomes but can tend to be haphazard or casual about investing and integrating a financial plan. Often, they may think that their incomes are secure, their career path certain, and they have skill and time to handle things on their own.
In reality, most may not really know what it takes to get to their goal. For a 49-year old executive with a good $400,000 annual income and a $1 million investment portfolio trying to target for a retirement lifestyle at age 65 without much down scaling, he has to grow his nest egg to $6 million within a mere decade and a half.
And there is the equally disturbing statistic that the Great Recession has been hard on white collar professionals. Those with college and advanced degrees make up more than 20% of the unemployed and long-term unemployed.
Be the CEO of Your Own Investment Company
Investing at any level and especially at this level requires a business mindset. The same sort of principles that apply to business success apply to your own investing. And just like any other CEO, you need to make sure that your assets are managed in a systematic, disciplined and prudent manner.
- Business Plan: You need a business plan for your investments that covers the short and long term. This means having a clear road map for your goals with appropriate benchmarks tied to achieving them. Instead of using the arbitrary indexes quoted by the media, you need to have a personal benchmark so you’re more likely to stay on target.
- SMART GOALS: You need clear goals: Specific, Measurable, Achievable, Realistic and Time-Specific
- Commit to a Realistic Strategy: You need a clear strategy for meeting those goals – a 20% annual return might sound nice but is it realistic given historical norms and your own experience and peace of mind
- Don’t take it personally: As in business, don’t take the ups and downs in the market personally and don’t be afraid to review
- Surround yourself with a professional team: If you’re serious about investing for success, then take the time to assemble a proper team of professionals who can help and who you can trust. No business succeeds long term without a good team.
Don’t be too focused on your career to ignore this. You can’t afford to treat your family’s future security as a part-time job or hobby.