7 Habits of Highly Successful Investors

Ever read the book by Stephen Covey, “7 Habits of Highly Effective People”? If you haven’t, look at the link I’ve attached and buy it. I’m not exaggerating when I say it’s a game-changer. In it, the book distills timeless wisdom into 7 lifelong practices for building a successful and fulfilling life.

Unlike small daily actionable steps like brushing your teeth or combing your hair, these habits are actually patterns of thinking and acting that represent a broader approach to life.

Collectively, these 7 habits help you to examine and adjust your character, your motives, and your perspective see the world to become more effective both personally and professionally.

Covey’s argument is that in order to change your behaviors and your life requires you to change your perspectives (or paradigms). Your perspective impact how you interpret situations, and your interpretations also dictate your behavior. In other words, changing your perspective changes your behavior. Changing your behaviors changes your outcomes which also changes your life.

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Covey then distills his advice into habits in order to make it actionable and emphasize that these steps are lifelong habits. This isn’t a 1-time quick fix. When behaviors become habits, it becomes embedded into your subconscious and puts that behavior on autopilot.

The 7 habits make you effective because it prioritizes getting the most important things done which raises the quality of your effort and your accomplishments.

In my life, these habits have become game-changers for me. Changing my paradigms has opened up new possibilities that I never thought previously possible.

So I began wondering, what would the 7 habits of highly successful investors be? What would it look like? Why would it be that way?

Why Are Good Investing Habits Important?

For the same reason as stated above by Stephen Covey, having deliberate actions and behaviors in investing will not only right-size your thinking but also change your behavior.

Don’t believe me?

Then read any personal finance blog and learn about their journey.  Go to ESIMoney, His & Her Money, Making Sense of Cents, Financial Samurai, etc.  Just pick a few and read. You’ll find similar ways of thinking, similar perspectives, and a deliberate methodology to their financial independence journey.

With some, you’ll also learn how they have changed over the years, how their mindset has evolved, and what it took them to reach their level of financial independence. None of it was an accident or done by serendipity. It was methodical. It was deliberate. It was actionable.

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They created good financial habits which enabled them to make better financial decisions. It wasn’t about “getting rich quick”, “playing the market”, or “riding a hot streak”. Good financial habits are an essential part of achieving both financial success and financial wellness.

It means being able to not only meet your family’s needs, but it also means being able to set and achieve your financial goals.

I decided to put together my 7 Habits of Highly Successful Investors from what I have seen on dozens of podcasts and read over hundreds of personal finance articles over the years.

I wanted to follow the mantra Stephen Covey used throughout his book: changing your perspective changes your behavior.

Then creating habits to continually reinforce the new behaviors leads to new outcomes in your life.

It’s like the old saying, “If you continue to do the same things you have been doing, you will end up with the same results you have been getting.”

We don’t want that do we? Lol 😊

Without further ado, here are the 7 Habits of Highly Successful investors that I’ve compilated…. enjoy!

7 Habits of Highly Successful Investors

Have A Plan And Stick To It

Creating a plan is the foundation to financial success. It doesn’t have to be fancy or elaborate, but a plan is needed to achieve financial success. The planning process allows you to take stock of the situation you are in, to define the promises you make to rectify it, and to figure out the practical steps needed to achieve success.

In my research, I didn’t come across any person who achieved financial independence by just “winging it”. Hell, odds on “winging it” probably put you in the situation you are in now…. just sayin’! 😊

Every one of them changed their outcome by figuring out what was important to them, deciding where they wanted to go in their financial life, and planning to achieve the desire to be financially independent.

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These people also found ways to track progress and modify the plan when needed to stay on course or even adjust the course altogether. Either way you look at it, the plan stays rock solid when it’s able to measure progress and create course corrections.

Without a plan, odds on you’ll wander aimlessly not knowing how to achieve the goals set or know if you’re even on the right track. Without a plan, your odds of saving enough to retire on or having the cashflow needed to cover your bills goes down dramatically. NOT a good option.

An error people tend to make is when the economy takes a dip and people start to panic. When this happens, people without a plan tend to pull back on saving for the future for fear of missing out in the present.

Not so with people managing their plan. They know that dips in the market are just part of the process and the best thing to do is to stick it out through thick and thin.

You know what else people with a plan don’t do? They don’t have a scarcity mentality. Which is the next habit to adopt.

Adopt An Abundance Mindset

Wondering what is a scarcity mindset? A scarcity mindset is when a person is so obsessed with a lack of money or resources that they cannot seem to focus on anything else no matter how hard they try.

A scarcity mindset stems from the inherent feeling that there will never be enough. This understanding is not only inaccurate, but it can be toxic as well. This mindset can poison a person’s thoughts and warps their perspectives (or paradigms) of how the world works.

Don’t believe me? Talk to anybody still alive who grew up during the Great Depression. My parents did. They grew up with a scarcity mentality because resources for the general population was so hard to find, people were forced to live without it.

It’s not their fault. It is just the circumstances they grew up in and then passed onto my siblings and I without even realizing it. I can remember growing up, my mom never threw ANYTHING out!

She saved everything from old newspapers to buttons to canning jar lids to yarn. Dad was the exact same way. If it could be saved and re-used we did it.  Nothing was out of bounds, even food.

I remember mom saving leftovers for over a week no matter how small the amount. I remember one time we had bits and pieces of leftovers from about 10 different meals. She even saved a golf ball sized portion of spaghetti and meat sauce!….. true story.

You want another true story? On our farm we grew beef cattle and always had a deep freezer stocked with beef. Hamburger, roasts, and steaks were eaten daily. I remember one time when we had a lot of hamburger leftover from the previous time it was purchased.

A new batch was coming soon so mom did what she always does. Did she throw it out? Nope. Did she give it away? Perish the thought. Did she try to trade it with another family for other groceries? Oh, hell no!

Instead, we ate hamburgers and sweet corn from our garden every day for both lunch and dinner until it was all used up. We did this for 11 …. days….. straight!

Why am I telling you this? Because I know firsthand how damaging a scarcity mindset can be and it held me back for years.

Once I adopted an abundance mindset, my whole paradigm changed. I discovered new possibilities on how to handle problems and situations that never occurred to me before.

With an abundance mindset, you realize that resources are infinite! The only thing limiting you is your imagination on how to utilize it.

After I adopted this mindset, our financial situation changed dramatically. My thoughts went from “I need to learn to live without” to “I wonder how I can get what I want or need? Who can help me out?”.

You’re never in a rough situation because there are ALWAYS options to rectify it….. it was game changing……. revolutionary.

An example of an abundance mindset is the use of leverage (using other people’s time, money, and resources) and finding win-win situations. Want more examples on how to go from scarcity to abundance mindset? Check out this article in Forbes, it’s eye opening!

Invest In Education

Another common theme among people who achieved financial independence is continuing their education long after entering the workforce. They didn’t stop learning. They invested in themselves.

Their education came in a number of ways. Some people invested education in their careers. For many of us, our biggest income producer is our career. So what did they do? They prioritized their efforts to maximize their career potential.

Why did they do this? They realized that money follows value and not the other way around. If you want to earn more income at your career, you must maximize the value you provide to others.

It could be getting a master’s degree or PhD. It could be additional certifications. It could even be improving your soft skills. Soft skills and social IQ are increasingly becoming the differentiator between the haves and have nots in the corporate world.

Lacking leadership experience? Take on an assignment at work outside of your job description or lead projects at a volunteer organization. Leadership is a transferable skill.

Need to improve your social IQ or interpersonal skills? There are online courses for doing just that. One great one I have used is CharismaOnCommand. They have a ton of great tips for improving your social game in a fun and entertaining way.

Another way to continuing educating yourself is learning all you can about personal finance. Personally, I’ve read hundreds of articles and viewed dozens of YouTube videos on personal finance topics. Anything from how to invest in stocks to how to leverage other people’s money in real estate to how to read a financial statement to how to manage my finances.

You can never learn too much……

What did I do with all the extra money this education provided me? That is the subject of our next topic.

Learn To Be A Saver

This is one of the most common themes I noticed in the personal finance community. What good is adopting an abundance mindset and investing in yourself to maximize value if you spend every dollar that you make?

It’s easy to get caught up in the ups and downs of the stock market, your finances, and your life. Emergencies will come up so plan ahead for them. Saving early and often can be a powerful force when it comes to making progress toward long-term goals.

As a rule, you should be saving AT LEAST 15% of your income for retirement (this includes company matches). If getting started later in life (age 35 and beyond), shoot for a higher amount because you need to catch up since 10 or more years were not being utilized.

Want to be a super saver? Shoot for a minimum of 50% of your take home pay be put towards retirement.

A side effect of learning to be saver is that priorities are established, instant gratification is curbed, and expenses are minimized. The formula isn’t magic, it’s just what is needed to be done to reach a financial goal.

Remember it’s not what you make that counts it’s what you keep that matters….. write that down! 😊

Embrace Diversification

Diversification. We have all heard of it and how important it is. I totally agree that diversification is one of the keys to a robust portfolio that can weather all types of markets conditions and mitigate risk of losing money.

Diversification makes it much easier to stick to a plan and not freak out when the stock market dips 50% or inflation climbs to double digits.

Where people trip up is that they listen to their financial advisor who tells them that they have to investment in a mix of stocks, bonds, and index funds only.

The reason they receive that advice is because financial advisors only profit and earn a living if you only invest in these tools. The advice is self-fulfilling for them.

The true way to diversify is to not only invest in the stock market only but also invest in things outside the stock market. This is how the Yale Endowment Fund does it.

For those of you not familiar with it, it is the world’s largest private endowment and I talk about it in detail here.

The fund invests much of its money in things outside the stock market. The reason for this is that even though investing in the stock market can be profitable and generate a lot of wealth, it is also very volatile.

This is where people trip up the most. They only invest in this volatile category and do not invest in things that can mitigate this risk. They literally put all their egg in one basket, cross their fingers, and hope for the best.

Open your mind up to the possibilities. The people I have researched didn’t create their wealth from stock market investing alone. They built it by diversifying into real estate, precious metals, crowdfunding, private P2P lending, owning a business, and even cryptocurrency.

There is a reason they do this. A lot of these alternative assets are hedges (protects) against stock market risk and enables them to continue growing their wealth even if the market is down 30, 40, or even 50%.

Manage Portfolio Killers

One lesson I learned from my accountant is that there are 3 killers of any investment portfolio: taxes, fees, and inflation.

Where the average person tends to trip up and the people achieving financial independence don’t is by how they control and manage these killers.

Taxes can really hurt portfolio performance. Tax rates currently are at an all-time low. The odds of you belonging in a higher tax bracket when you retire is significant.

There are several arguments for both traditional and Roth IRA’s. The reality is that you may (or may not) be in a higher tax bracket when you retire. Personally, I would prefer to pay NO income taxes in retirement. I have done my fair share during my working years. Look at it this way, would you rather pay taxes on the seed (smaller amount and smaller tax bracket) or the tree (a MUCH bigger pool of money that can be taxed at higher rates).

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To control taxes, invest as much as you can into Roth IRA’s. If making too much money to do so directly, check out a Back-Door Roth IRA. It’s a legal tax loophole for converting your traditional IRA into a Roth IRA. Conversions can also occur on a yearly basis.

A new tool to use to fight taxes is the Roth 401K. My company offers it and so does my wife’s. A Roth 401K offers the same contribution limits as a traditional 401K. Deposits are made after taxes taken out, but when you make withdrawals it’s tax-free! Check that one off the list. 😊

Another retirement killer is fees. Fees may seem small when deducted from your account but can really add up over time.

In years past, online brokerage accounts used to charge fees for each transaction made. Today, there are several brokerage accounts (i.e., Robinhood) that do not offer any fees at all.

Also, index funds are low-cost ways to invest in the stock market. Spending more money on actively managed funds has been proven to NOT equate to more net worth in your pocket. For my money, passive investing is the way to go.

People know they cannot control the market, but they can control the costs they accumulate. Plus, index funds have been proven to outperform other funds in the same category.

Lastly, there is inflation. Inflation directly eats into the buying power of your money. For example, if your money earns an 8% rate of return that year and inflation runs at 4% that year, your real return that year is 4% (8%-4%)…. Ouch!

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How can you mitigate inflation? This is where true diversification comes in. There are several financial tools to mitigate inflation and is NOT correlated to the stock market. In other words, when stocks go down, these go up. Some of the things that can be done to mitigate inflation include investing in real estate, precious metals, and even cryptocurrency has recently been used.

Another way to mitigate inflation is to design your investments to provide consistent cashflow. A lot of people focus solely on net worth. The problem with this is when the withdrawal period comes and inflation is higher than expected, it eats into the money available to meet living expenses.

Building a portfolio focused on cashflow helps to resolve that. Generating consistent income complements building your portfolio for net worth only. If the portfolio can generate enough income to meet living expenses, then there is no need to draw down the savings.

In the event you may need to draw down your investments, the cash will still be coming in. It’s beautiful!

Enjoy Your Life Along The Journey

Last but definitely not least is implementing self-care while going on this journey. Why bust your ass so much to become financially independent if it makes you feel deprived? Why save and slave away all those years if you cannot enjoy the journey?

Now this doesn’t mean you take part in every whim and splurge that you want. You must pick your spots. For example, if you really enjoy a Starbucks on the way to work every morning then by all means do it. If you really enjoy an all-inclusive vacation every year to relax and rejuvenate then for God’s sake do it!

The theme here is to pick out what is most important to you to continue your success and keep doing it. Think of it as more of an investment in yourself than a splurge.

For example, my personal investment is a Planet Fitness gym membership with all the perks. While it doubles my monthly allocation, the massage chairs really help ease my back pain and the posture improvement is definitely worth it. In the future, if I decide I do not need it, then I’ll just cancel it.

Bottom Line

The 7 steps were created to help you develop good financial habits that last a lifetime. Life is more than creating a plan, executing it, and monitoring progress. It’s more than tracking numbers and learning how to invest. It’s also about enjoying the journey along the way and enriching your life in the process.

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The 7 habits are tools that can help to change your perspective and therefore change your behavior. Changing behavior also works to change your outcomes…. and we all want better outcomes, don’t we?

Try the habits out and let me know what you think here.

Until next time……

Live The Life You Love, Want, And Deserve 😊