The majority of financial and investing advice you read about focuses on perfecting individual tactics. It’s often about evaluating the strength of your portfolio, introducing you to the basics of one type of investment, or making a pitch for why one asset is a better bet than another. Accordingly, most investors build their strategies around these individual pieces of advice, Frankenstein-ing together a portfolio which, while profitable in many cases, may not live up to the investor’s full potential.
This isn’t a bad approach, especially if you’re getting advice from multiple sources, considering it carefully, and applying it only as you see fit. But for long-term success, instead of focusing purely on making better investments, you should focus your attention on becoming a better investor.
Why Investors Beat Investments
The idea is to improve your own knowledge, skills, and decision-making abilities directly, rather than letting them be shaped over time, or making individual decisions as they arise.
There are a few distinct advantages to this approach:
- Compounding returns. You know that compound interest is powerful in the realm of investing, so consider the qualitative returns of improved skills and knowledge as they increase throughout the years. The sooner you improve your investing abilities, the longer they’ll have to work in your favor.
- Advice mitigation. During your tenure as an investor, you’ll hear thousands of tips and pieces of advice, from as many sources. The better your own skills are, the better and more critically you’ll be able to consider this advice.
- Consistency. Being a better investor means deciding on your own goals and strategies, which allows you to make more consistent decisions—and ultimately yield more stable returns.
How to Improve Yourself
So what can you do to make yourself a better investor?
- Formally document your goals. First up—decide what your financial goals are, and try to be more specific than “get rich.” As you learn more information about investing, you may need to modify these in the future, but it helps to have a firm foundation. Are you hoping to retire early? Are you trying to put your kids through college? How much money do you need and when? How much time are you willing to put in? These goals should drive your subsequent decisions.
- Start with a single niche. Rather than trying to master investing in all its forms, focus your energy on learning on niche at a time. For example, you could specialize in trading futures, learning everything you can about the strategy before moving onto other areas of specialty, such as real estate investing or dividend investing. Working on one niche at a time helps you focus your efforts and build one strong skillset, rather than building lots of mediocre skillsets.
- Learn from people more experienced than you. This is a big one. No matter how long you’ve been investing, there will always be someone more experienced and knowledgeable than you are. Seek them out via networking and meetups, and talk to them about their strategies. Chances are, they’ll be happy to impart some wisdom.
- Read from multiple sources. If you rely on only one or two sources to get your investing advice or learn financial skills, you’ll be inherently limiting your potential. Instead, try to read from a diverse array of different sources, including magazines, journals, online publications, and individual authors. It will help you filter out the best core principles from less reliable advice.
- Sandbox your strategies. Consider using a sandbox or practice tool like Wall Street Survivor to try out your investing strategies without using real money. You’ll be able to train yourself on basic principles and become familiar with day-to-day activities without staking any of your own cash.
- Challenge your assumptions. According to the Dunning-Kruger effect, almost everyone overestimates their own cognitive abilities. As you become more experienced, you’ll be fooled into thinking you’ve mastered specific skills, but make it a point to keep challenging your assumptions. There’s no better way to learn.
- Keep learning new things. If you haven’t learned anything new in a while, make it a point to go out and find something new to master. Pick up a new book or see what up-and-coming influencers are saying; it’s the best way to stay up-to-date and maintain your interest in investing for the long term.
Being a better investor isn’t about having more money or having insider information. It’s also not about finding the hottest tips or having the most diversified portfolio. It’s about learning to improve your own knowledge and abilities, and using those new qualities to make more informed decisions. You may not notice much of a difference at first, but over the years, you’ll end up making much better decisions—and earning far greater returns.
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