When investing in the stock market, your mindset will have a significant impact on the outcome you receive. Your overall outlook on investing will determine things like the risks you take, the business you invest in, and ultimately your returns.
Essentially, there are 3 different types of people when it comes to investing: the conservative, the risk-taker, and the realist. Depending on the approach you take, your results will vary. Some mindsets are inherently more successful than others, but that doesn’t mean that you can’t make your approach work for you. The important thing is to understand which category you fall into and tailor your investment plan to suit your needs. There’s no simple formula to defining the success you will have in the stock market but understanding the role that your mindset plays will help you make wiser decisions. Thus, leading to greater returns and greater end results.
The conservative investors are the people who play it safe in the stock market. Their main goal? To preserve what they have by beating inflation. They value low risk and consistency. They’ll be more likely to pull their money out at the slightest hint of downward incline. The term “rebound” doesn’t exist in their vocabulary. The good side of this way of investment is that losses will be minimized. People with this mindset will also tend to do extensive research before making any investments. They aren’t looking to ride a trend just because of the hype. They are focused on the facts. On the downside, their chances of achieving large gains are very slim. Some of these people are too cautious and have a high allocation to government bonds overstocks.
The Risk Taker
These are the people that live by the motto, no risk, no reward. They are willing to put it all on the line for the sake of gaining big in the end. These people tend to play an in and out game in the market. They come in during times like the 1990s and now, especially when it comes to tech stocks. They’ll cut their ties and get out during low periods such as 2008–2009, and early 2020 during the early stages of Covid. The upside to this way of thinking is that when investing, you can’t be afraid to take risks. The whole stock market is a gamble. Therefore, these people often have an advantage over the conservatives because they are willing to take a risk in order to strike gold. They are also very good at following current events, mapping out trends, and jumping in at the right time to ride the wave. The downside? Many of these types of investors view the stock market as a quick, rich scheme, and therefore lose money. They look at stocks like Tesla that have done 700% in recent years and think it will always be easy to make much money. This isn’t always the case and can put them at risk of suffering from huge losses.
The realist investors are perhaps the most balanced of the 3 groups. They know that stock markets have performed excellently over time but understand that their success will take time and come with risks. They are likely to do some research before diving in but won’t hesitate to jump in if they see a trendy opportunity. They have a deep understanding of the timing involved in the stock market. They play the long game and understand that they won’t make millions overnight. But they are determined to make millions in the long run. They tend to invest in stocks that will gradually do well over time or even seek stocks that pay dividends. They know that with the right strategy, there is a strong possibility of getting wealthy, slowly but surely from investing, as the compounded returns are incredible. This group of people also tend to “know the score”, and understand that some years and decades will give much better than average returns, with other periods giving subpar returns. They aren’t quick to blindly jump into making an investment, but they also won’t jump out just because of a slight decline. They understand that timing is key and this is why they tend to outperform the first two groups long-term.
No matter what category that you fall in, you can experience success in the stock market if you create the right strategy. If you’re the conservative type, you have to come up with a strategy centered around extensive research and following the facts. You should set your expectation for the long run and expect gradual gains versus expecting immediate large payouts. If you’re the risk-taker type, chances are you’ll be better off playing the short game. Get in and get out as needed and understand that your fearlessness can certainly pay off big. But balance your expectations by knowing that you can also suffer from huge losses in the process. And if you’re the realist type, your realistic expectations are probably your best asset. You have the power to strike a good balance between establishing consistent gradual gains, but you may also hit big every now and then if you keep up with the way the world is moving.