Five habits of experienced investors

From being patient, to thinking long term, to taking a diversified approach, we look at habits that experienced investors adopt to help make decisions.  

If you’re thinking of investing for the first time, then we know taking the initial steps can seem a little confusing. And if you already own investments, you might be reassessing them. Whichever stage you’re at, here are five habits of experienced investors, to help you invest with confidence.

Think of investing as being about setting medium to long term goals, rather than generating as much money as possible in the least amount of time. You might find yourself unable to commit to a decision as you attempt to ‘time’ the market. If you wait for the ‘perfect’ moment you might never know when to start investing.

Even the best investors can’t predict short-term price fluctuations. Instead, they make a long-term assessment of an investment and invest based on their own time horizon. This gets their money working, rather than sitting on the side lines.

Experienced investors understand the importance of allocating their investments across a range of different asset classes, sectors and regions. Traditionally there are four main asset classes: cash, shares, property and bonds. Spreading investments across this type of range is fundamental to our asset allocation process, and it’s one of our investment principles.

In the words of Sir John Templeton, an investor, fund manager and philanthropist: “To avoid having all your eggs in the wrong basket at the wrong time, every investor should diversify.”

Experienced investors look beyond short-term movements in the market to focus on the bigger picture. We follow our investment principle of remaining patient to ensure we capture long-term opportunities and do not overreact to short-term, temporary events. By thinking like this, your investments could benefit from potential growth in equities over the longer term.

As an investor, you can make the most of your annual tax-free allowances. These limits are set by the government. Make sure you understand the tax status of your investments to allow you to maximise capital growth and income. Individual Savings Accounts (ISAs) are a popular tax-free investment wrapper. Any returns from an ISA are exempt from income tax and capital gains tax, meaning any money your ISA earns you keep.

Over the longer term, investment fees can have a big impact on your returns. Keeping an eye on how much you’re paying can help you maximise returns. You could look at funds that track an index as part of an overall investment strategy. Or you could use an active manager who will use their experience and expertise to choose the best stocks and maximise performance. However, managed funds tend to have higher charges.

Alternatively, you could look at passive funds through which a fund manager gives their views on asset allocation and you take it from there. This can be a good compromise of low charges while still getting access to specialist fund management expertise.

Our own Personal Portfolio Funds – available through our online investment service Royal Bank Invest – are designed in this way.

Whether you’re an experienced investor or just finding out what investing is, we’ve got a range of articles to help you understand more about investing.

We regularly update our articles depending on what’s happening in the market so check back for future updates.