It’s fairly indisputable that discipline is one of the most vital attributes for a person looking to establish financial security. But it’s also particularly important for those who are looking to invest their money, whether in stocks, commodities, or some other venture. A reckless or carefree approach can get you lucky now and then, but will ultimately prove unreliable or at least unsustainable. On the other hand, a more practiced, careful, and strategic approach to investing can result in a stable long-term outlook and steady growth of funds.
Some of this depends on personality and experience, but here we’ll look at three tips anyone can follow for how to become a disciplined financial investor.
1. Divide Your Expectations Into “Buckets”
If you haven’t heard of the “bucket approach” before, you may want to learn a little bit about it before reshuffling your financial strategies. Basically, this is the approach of dividing your money into buckets for specific goals. For instance, if you want to buy a car, you’ll have a set venture dedicated to your car fund; the same might go for a home, an engagement ring, tuition, or even something a little smaller like a vacation. The point of doing this is to gain a more comprehensive understanding of what money you need for which purposes, and when you need it. You can then plan investments accordingly, and if necessary break up your strategies from one “bucket” to another, allocating risk as seems appropriate.
2. Keep A Trading Journal
If that sounds like it might be a technical term, don’t worry, because it’s not. There’s no exact format or method for a trading journal, but it’s been described as a comprehensive record of data related to a trader’s performance over time. Basically, that means it’s a detailed set of notes on everything that’s gone into your trades. Ideally, it’s not just what the asset was and whether it was a gain or loss, but also what the conditions were upon entry and exit, why you invested, why you pulled out, etc. It can be as thorough or simple as you like, but the underlying point is that past performance can help you to learn a great deal about your own habits, and what your best conditions for success have been. The best traders are unemotional but still introspective!
3. Eliminate Your Emotions
We just mentioned that the best traders are unemotional, but this bears further attention in its own category. Simply put, it’s been expressed by innumerable experts and publications that reacting emotionally can lead to poor decisions at the worst times. You might panic and pull out of a perfectly stable investment simply because of a downturn, or you might get excited and pump more money into a rising asset that isn’t poised for long-term success. Those are very basic examples, but they illustrate the larger point that too much happiness, excitement, sadness, or worry with regard to investments can lead you to make decisions that aren’t based on logic and knowledge. Of course you’re going to be thrilled when your investments are making money and frustrated when they’re not—just don’t let these or any other “feelings” dictate your actions.