When it comes to building wealth, the average person has two options: earning income or investing. Most people require both a stable income and consistent investing to truly amass wealth over their lifetime.
However, if you want to find success with investing, you must remain disciplined.
Disciplined investing sounds nice on paper, but is challenging to execute in the real world where market conditions change, incomes fluctuate, and personal needs and desires evolve. If you really want to be a disciplined investor, you must study what others are doing and create a game plan that allows you to remain steady for decades to come.
Here are five tips for remaining disciplined with your investments:
1. Start Investing Early and Often
Disciplined investors invest money into the market early and often. They don't just invest large chunks of money one year and nothing the next. Month after month, year after year, they put money away and watch it grow.
2. Don't Let Emotions Dictate Behavior
There should be nothing emotional about investing. While it's hard to gain and lose money without feeling twinges of excitement and fear, you have to insulate yourself against external factors. This will allow you to stay the course when positive and negative events happen.
3. Respect the Cyclical Nature of the Market
If you have a bunch of money tied up in the stock market, it's easy to get nervous when there's steep downward movement. However, disciplined investors understand that the market is cyclical and there will be periods of growth and decline.
Just recently, we experienced a rather significant market correction, which MarketBeat describes as a 10 percent decline from a recent peak. While a lot of people jumped ship when they saw the markets plunging, disciplined investors simply shrugged their shoulders and saw it as an opportunity to stay put and invest more. Over time, this correction will become nothing more than a blip on the radar. The historical trajectory of the market has always been up, so there's no reason to panic when you have years to ride it out.
4. Balance Your Portfolio
Diversification is one of the staples of disciplined investing. While there will be times when it's tempting to throw all of your money at a "surefire" investment, making these high-risk decisions will eventually bite you in the rear. Strategically allocating your portfolio over multiple assets and funds will allow you to maximize earnings while mitigating risk.
5. Don't Touch It
As you see your investment grow over time, you'll occasionally feel the temptation to pull some of it out and spend it on something fun - like a new car, bigger house, or fancy trip. But if you're truly disciplined, you'll fight these urges and leave your money alone until you reach retirement.
"Don't touch it," financial analyst Todd Lebor of The Motley Fool says. "I know this sounds harsh, but that's how money grows. It feeds on itself. Like a virus, it multiplies and multiplies. Messing with it kills the regeneration. Pick a figure that you are comfortable you can do without. Invest it regularly, and keep your grubby little hands off it."
Slow, Steady, and Strategic
While it may be more fun to chase hot stocks and move money around as the market ebbs and flows, an approach like this is risky and unstable. You may experience some hot streaks and good years, but you're more likely to eventually get burned using such a strategy. Over the long run, disciplined investing is far safer and more effective.
If there were three words to describe disciplined investing, they would be slow, steady, and strategic. If these descriptors sound boring, you're probably right. But do you know what isn't boring? Watching your money grow and amassing wealth that allows you to enjoy a happy and comfortable lifestyle and/or retirement.
In fact, it doesn't get much more exciting than that.