“Everything you see I owe to spaghetti.” Sophia Loren’s famous beauty secret may have been tongue in cheek, but it’s true that most of us dream of finding that silver bullet, the magic formula that will transport us to our ideal – whether it’s for youth, happiness, looks, or wealth.

As I told my clients over the years, the secret to investing is that there is no secret. Instead, success is all about knowing yourself, getting the basics down and using both to make the right choices.

So here, based on BlackRock research, are five “secrets” of successful investors.

  1. Know what you own and why you own it. Anchor your plan through the lens of your goals. Successful investors will tell you first why they own a particular investment before telling you what it is. A random collection of investments is not an investing plan.

I modified the goal setting guidelines of “SMART” to help me stay focused:

  •  Specific: goals should be written down
  •  Measurable: have a way to quantify progress
  •  Ask: seek advice when you have questions
  •  Responsible: adjust your portfolio as needed
  •  Transparent: share your goals with family and others
  1. Prepare for jumpy markets. In recent years, markets have been quite calm, with few dramatic ups and downs. This isn’t normal. The successful investor knows that when the market dips, it’s not time to flee but to buy “on sale”. People tend to miss out on investment gains because they sell when the market goes through a rough patch. Get familiar with normal market bumps (otherwise known as volatility) and stick to your strategy.
  2. Diversify. Really. You may know the term “diversify” as an investment directive to not put all of your eggs in one basket, but what does that mean, exactly? I had a client during my financial advisor days who spread his assets among five different banks and called himself diversified. Diversification means balancing risks in your portfolio by combining investments that differ from one another. It’s a way of finding opportunity for growth while minimizing the overall bumpiness from year to year.
  3. Rethink the safety of cash. I’ve discussed this before on The Blog and I can’t stress it enough. Cash is not an investment strategy. People know this, but they stick with cash because they think it’s safer. What they’re ignoring is the risk to their future spending power. Not only does cash provide virtually no return, it can lose you money thanks to taxes and inflation. Sure, inflation may be low today, but even a nominal amount of inflation can really pack a punch over time. If you’re holding too much cash, you should consider putting it to work.
  4. Don’t set it and forget it. There’s an old rule of thumb that you should have the same percentage of bonds as your current age. So if you’re 40, the rule is that 40% of your portfolio should be bonds and the rest should be equities. But this shortcut, like many others, is oversimplified. It doesn’t take into account changes in the market environment, not to mention your life and circumstances over time. Successful investors fully and optimistically engage in their financial lives. That doesn’t mean being a day trader, but rather owning your financial future. Make the most of it.

I’ve got more to say about each of these, which I’ll do over the next few months, offering you additional context and action steps you can take.

 

Heather Pelant is Personal Investor Strategist for BlackRock. She is a regular contributor to The Blog and you can find more of her posts here.