10 Ways to Become a Better Investor

Yes, You Can Get Better at Investing

Better investing doesn't happen accidentally. Good investors work at it. They study. They learn. Start with 10 Ways to become a better investor, and once you start learning, never stop.

1
Turn off the news and watch more Star Trek.

Invest Like a Vulcan
Invest like Spock on Star Trek - with logic. ConeylJay/Ston/GettyImages

I grew up watching Star Trek. One of the main characters is Spock, a Vulcan who, unlike us humans, is logical to a fault. You can learn a lot by watching his cool, unemotional character make rational decisions in the face of great stress. Old economic theory thought that humans were like Spock, always making rational decisions that would lead to maximizing wealth. The newer field of behavioral finance tells us otherwise. To be a better investor, study behavioral finance, and watch more Star Trek.

2
Treat your money like soap.

white bar of soap in water
Money, like soap, dwindles quickly if you handle it too much. ChrisStein/Iconics/GettyImages

Gene Fama is a famed academic in the field of finance. I heard his son once say, “Your money is like soap. The more you handle it, the less you have.” So true. Moving money entails transaction costs, sometimes tax consequences, and most often, you’re going to move it at the wrong time. How do I know this? Year after year research shows that average investors underperform the market, earning half of the returns they could have all because of their poor timing abilities. For better than average investing, when you move money, it needs to be part of well designed investment plan, not a last-minute reaction.

3
Learn the term "dollar cost averaging".

hundred dollar bills
Learn to invest at regular intervals. Adrianna William/Getty Images

Dollar cost averaging is a strategy used to reduce market risk by automatically investing a set amount at regular intervals. It forces you to buy more shares when the market is down, and buy less when the market is up. Smart savers automate their savings plans and let them run for years and years at a time. Be a smart saver, and if you don’t already, start dollar cost averaging.

4
If you can't handle the heat, steer clear of the fire.

man running away from burning papers
Stocks are not for everyone. MatthiasTunger/DigitalVision/GettyImages

Stocks are not for everyone. You can build a solid financial plan using only guaranteed, safe investments. If you don’t understand the stock market or what a mutual fund is, probably best to avoid these investments all together until you learn more. If you do understand, but get too nervous, than stay out of the market.

5
Read The Turtle and The Hare.

tortoise with snail on its back
Turtles win when it comes to investing. Buena Vista Images/Getty Images

Your colleague just doubled his money because he bought Apple stock at the right time. Does that mean he was smart... or lucky? Slow and steady savings with a disciplined plan delivers results, much like the Turtle, who steadily plods along. Bet on luck or skill and it may turn out okay, or you may get an unpleasant surprise.

6
Get comfortable with cash.

hundred dollar bills sticking up out of grass
It's ok to hold cash when you don't know what else to do. Blend Images/Getty Images

If you feel like money sitting in cash or money market accounts is wasting away, think again. Cash can be a great place to store money while you research, study and learn how to make smart decisions with it. People with cash have the ability to take advantage of great investment opportunities when the real estate or stock markets go down. Those who were fully invested don’t have those same opportunities.

7
Know what you own.

woman at computer
Get familiar with your statements. Tara Moore/Taxi/Getty Images

A stock is not the same as a stock index fund. A bond fund is not the same as a stock fund. It is amazing how many people who own large cap equity mutual funs react to an irrational fear that they can lose all their money. Do they have any idea what they own? Do they really think all the 500 largest companies in the U.S. are going out of business at once? There is a distinct difference between what I call a Level 5 Investment Risk, where you can lose all your money and taking on a Level 4 Investment risk, where you can’t.

8
Read books, not just websites.

different colored books
Read more books, not just websites. Phil Ashley/Stone/Getty Images

I love the internet. The amount of information available is astonishing and at times, overwhelming. But to get depth of knowledge in a topic, I still think nothing beats a good book. Educated investors earn higher returns. Committ to learning first and you'll get better at investing.

9
Study your shopping habits.

man comparing products in grocery store lines
Buy on sale, not at peak prices. Noel Hendrickson/Digital Vision/Getty Images

When is the last time you went to the mall, saw something you really wanted that was on sale at half price, and thought, “No, I am afraid the price might go down more. I am not going to buy it now.” When stocks drop substantially in price that means your future financial goals are on sale. Better investing means acquiring the knowledge and discipline to recognize when things are on sale, and buy low.

10
Remember, THEY do not know you.

news reporter
The media's advice does not always apply to you. Dream Pictures/Stone/Getty Images

Who is “they”? All the people (including me) who offer advice and financial commentary to the public. We don’t know you or your situation. We are offering advice that is applicable to a broad population. Does it apply to you? I don’t know, and neither do “they”. Only you and if you have one, your personal financial advisor, can determine if the advice is applicable to your situation.