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The 6 Most Common Bad Investor Behaviors to Avoid

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While humans are creatures of great intelligence, when it comes to investing, we repeatedly make dumb decisions. And most of the time, investors are their own worst enemy. You see, it’s not just the performance of the funds in your portfolio that drive success. Investing success is also a function of the decisions you make along the way; in essence, bad investor behavior can have an even greater impact on your portfolio’s performance than the market itself.

Aside from what traditional theories like to assume, investors do not always act rationally. In the reality, they are quite vulnerable to irrational behavior. This is because money is emotional, and emotions can overtake even the best laid plans. Unfortunately, impulsive or “feel good” financial actions don’t always support positive long-term growth. They tend to support poor decisions that can leave investors worse off than when they started.

6 Bad Investing Behaviors to Avoid

We can’t discuss irrational investor behavior without understanding the actions that drive investors there. After all, it’s the psychological traps and misconceptions that ultimately trigger bad behavior. Bad behavior then leads to buying and selling at the wrong time, which can prevent investors from reaching their full financial potential.

Almost every investor is familiar with the general rulebook for building wealth. The problem is that many investors are often blind to their own bad habits. In order to overcome them, investors first have to be able to see them.

Here are six investor behaviors that are important to recognize and avoid:

1. Loss aversion. This theory reveals that loss is felt much more deeply than the gratification that comes with gaining. In other words, losing $5,000 will always hurt more than gaining $10,000. This mindset can cause several poor decisions to take place however, including holding onto losing funds for too long in order to avoid realizing a loss. On the other hand, it can drive investors stock pick, only investing in funds they believe will produce the largest returns.

2. Overconfidence. It’s human nature to think that you are superior to others around you. So naturally, investors think that they have the skills and knowledge to consistently beat the market. What usually happens is that investors find themselves continuously trading stocks they believe will outperform with little to show for it – aside from steep portfolio costs. Don’t be fooled by Wall Street’s appeal to our inherent above average mindset.

3. Just going with it. While many investors have financial goals in mind, a shocking percentage of them have no plan to actually achieve them. Investors who wing it and have no clear understanding of the “why” behind their investments will be hard pressed to develop a disciplined approach that results in success. And a disciplined plan is paramount. Remember, a goal without a plan is simply a wish.

4. Chasing the winners. Investors routinely tend to take an all or nothing approach. For example, say you’re holding 50% bonds and 50% stocks. Depending who’s winning at the end of the year may leave you feeling inclined to dump the loser altogether because you want to yield positive returns. But chasing the winner isn’t always a formula for success; when you dump the losers, you dump the possibility for gaining tomorrow’s winners.

5. Information overload. Believe it or not, there is such a thing as too much information. Our media outlets are saturated with financial talking heads all claiming to have the answers to investing success. But investors routinely seek out information that confirms their own biases and beliefs. When you listen to someone who is simply telling you what you want to hear, that information can have a greater likelihood of hurting rather than helping you.

6. Market timing. Wading back and forth between trading and investing can be detrimental to your success. Investing is simple: You’re gradually building wealth over a lifetime. Investors have a hard time with this, and engage in trading for instant gratification. They become obsessed with the high. But many will find themselves chasing it more than experiencing it, as it’s been proven time and again that investors are horrible at timing the market.

Why Does it Matter to You?

Reaching your full financial potential depends on more than where you put your money. You have to recognize the role that good habits play in your journey. And the importance of avoiding the bad habits that can deter your success. Understanding this is crucial, and until you do, you can’t form a disciplined investment philosophy based on your most important goals.

The 12 Boring Secrets to Getting – and Staying – Rich That Millionaires Won’t Tell You

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There is a certain stigma that has been painted of the “rich:” Mansions, exotic foreign cars, yachts and elaborate themed parties for apparently no reason – like the infamous white party. I mean, why do you need to have a party just to wear a white outfit? Buying into this image makes becoming wealthy seem like an impossible goal for many. But, most wealthy people live very normal lives. That’s because the secrets to getting rich are actually normal, boring secrets.

In the age of billionaire tycoons, being a millionaire may not be as impressive as it once was. In fact, the number of millionaires in the United States is growing: In 2013, CNBC reported that there were 13.2 million millionaires in the U.S. Still, having a million dollars or more in the bank is certainly nothing to write off as insignificant.

Chances are that if you ran into one of these 13.2 million millionaires, you may not even know that they belonged to such an elite group. That’s because most millionaires have figured out that fitting the “rich” stereotype can actually cause more harm than good when it comes to their financial success.

The 12 Boring Get Rich Secrets

Yes, the majority of millionaires are similar to you and I. They just know a few secrets to becoming – and remaining – a millionaire that others haven’t quite figured out yet. And they don’t like to share these secrets because while they’re incredibly effective, they’re also incredibly boring. There’s no glitz and glamour, no “rich” stigmata attached to them. If they told “normal” people their secrets, they might start thinking they can join the club of exclusivity too.

But luckily, we’ve uncovered a few of them and are willing to share them with you. Here are 12 boring secrets to getting rich that your millionaire counterparts won’t tell you:

1. Spend less than you earn. This is probably the most important secret to getting and staying rich. Ask any millionaire, and most of them would tell you that they would gladly defy society’s definition of “rich” rather than being deceptively poor. It’s never a good look when your neighbors see a tow truck repossessing the Bugatti in your driveway.

2. Money doesn’t buy happiness. Simply having money means nothing. It’s what you do with that money and how you use it that brings feelings of happiness and accomplishment. And there’s scientific research to prove it. Buy experiences instead of material items. Delay instant gratification. Donate to a charitable cause. Reach your definition of financial independence.

3. Be debt free. Or at least be bad (high interest rates), short-term debt free. The foundation of financial independence is rooted in having total control over your money. It’s a state of mind that’s cultivated from not having to pay others back, but being able to put your money to work for you instead. This is important, because this sense of independence sans debt can be achieved at virtually any income level.

4. Treat your money like your child. Okay, maybe not literally; don’t put it in a stroller and walk it down the street. But do treat it like a child to a certain degree. Money is incapable of managing itself. It needs help and guidance, a structure within which it can grow. It craves discipline. You can’t expect to just leave your money to its own devices and expect it to turn out the way you want it to. Growing wealth is just like raising a child. Give it your attention on a regular basis.

5. Patience is a virtue. Yes, millionaires are more common today, but no one becomes a millionaire overnight. Becoming a millionaire comes from hard work over a number of years. It comes from diligently saving 15% or more of your income, and understanding that investing is a marathon, not a sprint.

6. Pay off credit cards in full every month. I’ll say it again: Pay off your credit cards in full every month! This is that bad, short-term debt we touched on earlier. It also goes back to instant gratification. Waiting to buy something until you have the cash to afford it will always pay off more than impulsively spending money you don’t have. There’s no doubt that we’re a consumer society that wants things now. But millionaires understand that if they don’t have the cash, they can’t afford it.

7. Pay yourself first. Savings rates in America are at an all-time low. We all find ways to pay out our money to other people, but we forget to pay the most important person: You! Liquidity is essential to becoming financially independent. I cannot stress enough the importance of saving at least 15% of your income on a monthly basis. When something goes wrong, you have a safety net to bail you out. When the opportunity of a lifetime comes along, you have the capital to take advantage of it. Don’t be afraid to think big when it comes to your savings goals.

8. Investing requires a disciplined approach. Investing is one of the most unnatural things you can do; the markets defy traditional logic and reasoning, and have unpredictable behavior. When volatility strikes, it’s hard for investors to stay disciplined. Mostly because they haven’t defined their true investment philosophy, what they believe. Our newest investment strategies are designed to aide this. Their goal is take some of the sting out of volatility, making your investment ride smoother. Millionaires have done this. They know what they believe and why. They know where their money is, what it’s doing and why. They can move with the market instead of fighting it. They base their investing actions on a coherent philosophy that expresses their values, free from emotion and bias.

9. Making a financial “plan” doesn’t guarantee much. Unfortunately, life doesn’t care about your plan, and it won’t adhere to it. Life will happen, I can promise that. So instead of planning for something that we can’t predict and is out of our control, millionaires position themselves to effectively react to changing information. Our digital financial model, JB Wealth Builder, does just this. Being able to pull all of your financial information into one destination and evaluate the impact of those decisions on your complete financial life is imperative. Millionaires know you can’t make smart financial decisions otherwise.

10. Stuff happens. As we just said. There are risks threatening your life’s work every day. Millionaires understand that you’re a fool if you don’t protect yourself against that risk. And no, it’s not just about life insurance or disability insurance. It’s about everything from your personal liability to your estate plan to your tax plan. Most people are only one “what if” away from not reaching their full financial potential. Life events cause ripple effects, and either the dam holds up or the flood breaks through, unleashing chaos. Millionaires understand the importance of a protection first mindset. The rest means nothing if your life’s work isn’t protected.

11. Time is a good friend, if you’re in your twenties. Most everyone will tell you that they don’t feel confident in their retirement nest egg. Sure, not knowing how long it will last or how much you will really need plays a part in this. But the real issue is that too many people wait too long to start saving. They take too great of risk with their money, and end up losing big. They cash out retirement accounts for down payments on homes. We operate with this idea that there’s always time to catch up. Millionaires understand that this couldn’t be more wrong. They start early, they start smart and they know this money is for their future, nothing else.

12. You can’t spend what you don’t see. It’s true, money can burn a hole in your pocket. The only way to snuff out the flame is to get it out of there and spend it. This is why a lot of six-figure earners find themselves living paycheck to paycheck; they spend everything they make. Setting up automatic deductions on your paycheck not only keeps you from seeing this money, but forces you to pay yourself regularly. Millionaires understand this struggle, and realize it can be easier to overcome when it’s out of sight, out of mind.

Why Does This Matter to You?

Really, what this comes down to is redefining what we think of when we hear the term “rich.” Sure, there’s a certain element of glamour to it, a hint of the fairytale. But if that’s all you think being rich means, then you probably feel like you just wasted the last five minutes of your life reading this article.

However, if your definition is a lifestyle where you can quit working for your money and have your money work for you, this advice may just be a home run.

15 Ridiculously Influential People Who Had to Fail to Succeed

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Rejection can conjure up feelings of genuine sadness, perhaps even anger and a low sense of self-worth. It’s a hard to pill to swallow when someone says that you’re just not good enough, that the dreams you invested your blood, sweat and tears into are doomed to fail. However, failure – more precisely, learning to accept failure – is a part of personal growth. One that we all must face at some point.

Think back to a time when you failed at something, when someone rejected your ideas and wrote them off without even blinking. Each “third time’s the charm,” “if at first you don’t succeed, try, try again,” and “close but not quite” can become a long string of personal heartache. And while you may not be a weak person, there is only so much you can take before you just want to throw in the towel. It’s human nature.

As isolating as the struggle that is failure and rejection can be, you’re not the only person who has ever gone through this journey. In fact, rarely does any successful person achieve their goals on their first try.

For many, success only comes after failure. And often repeated failure.

15 Ridiculously Influential People Who Had to Fail to Succeed

So, don’t despair if you’ve failed a few times on your quest for success. Chances are you’ll have a few more bouts with failure and rejection before you get there. To prove that you’re in good company, here are 15 ridiculously influential people who had to fail to succeed:

Walt Disney. His editor at the Kansas City Star felt he lacked “imagination,” and that his story ideas were less than impressive. He was fired from the publication. From there, he had several more business ventures that failed. It wasn’t until the premier of his first movie, Snow White, that his path to fame would unfold before him. Disney went onto create an empire built on imagination, quirky creativity and the definition of all that is good about childhood.

Jay Z. As a young and rising star born in the Brooklyn projects, Shawn Carter couldn’t get a record label to sign him. When he failed to garner any interest on his first CD, he and his friends took to the streets and sold copies out of the trunks of their cars. Years of working to perfect his craft finally led to success, and being dubbed today’s King of Hip Hop. According to Forbes, the musician/investor/entrepreneur is now worth $550 million.

Stephen King. He found himself writing his own horror story when he was rejected by publishers 30 different times when trying to publish his – now infamous – novel Carrie. At one point, he became so disgusted with himself that he literally “threw in the manuscript,” right into the trash. Luckily for King, and the rest of the world, his wife dug the manuscript out of the trash and encouraged him to keep going. The novel became a hit and launched his career as the King of Horror. His novels have sold 350 million copies over his career.

Oprah Winfrey. Her first job in the spotlight landed her as a news anchor in Baltimore. That journey proved to be short lived, as she was fired for being too “emotionally invested in her stories.” She lacked the ability to deliver the story and move on, putting her news career in jeopardy early on. Little did her boss know that her compassion for others would be what propelled her to becoming the queen of talk shows. Winfrey has amassed a media empire – including HARPO studios which also produces the Dr. Phil show – and huge endorsement deals. Today, Forbes has estimated her net worth at $3 billion.

Thomas Edison. One of the most important inventive minds of the 20th century was told by his teachers that he was “too stupid to learn anything.” His teachers’ predictions seemed to ring true, as Edison was fired from his first two jobs for not attaining a suitable level of productivity. Interestingly enough, being shunned from the working world was his ticket to success. Free from the handcuffs of societal standards, Edison’s creative genius was unleashed: He went on to hold more than 1,000 patents and invented world changing devices including the phonograph, electrical light bulb – which he failed at developing nearly 2,000 times – and a movie camera.

Steven Spielberg. If Spielberg had taken the multiple rejections from the University of Southern California’s School of Cinematic Arts to heart, we may never have had the pleasure of seeing the world through his eyes. He powered through the piled up rejections, and released the summer blockbuster of 1975 with his movie, Jaws. His career has spanned decades, and includes three Academy Awards, four Emmys, and seven daytime Emmys. His 27 movies have grossed more than $9 billion worldwide.

J.K. Rowling. When she began writing the first Harry Potter novel, she was a single mom living on welfare. It took a number of rejections before Rowling got a bite on her idea for the book series. In 1999, the first three installments of the Harry Potter series crushed the New York Times best-seller list. By the summer of 2000, the first three books had earned $480 million, with over 35 million copies in 35 different languages in print, with the fourth installment became the fastest selling book in history. The Potter phenomenon exploded from there. Rowling is now Britain’s 13th wealthiest woman – even wealthier than the Queen – and became America’s first billionaire author in 2004.

James Dyson. If you thought Edison failing almost 2,000 times to make the light bulb was insane, then brace yourself: James Dyson developed 5,126 failed prototypes before finding the Dyson brand’s claim to fame. Not only that, he simultaneously dwindled away his entire savings account over his 15-year journey of failure. Luckily, prototype number 5,127 worked. Dyson has become the best-selling bagless vacuum brand in the United States. Forbes estimates that James Dyson is now worth $4.9 billion.

Albert Einstein. During his childhood years, Einstein had a lot of difficulty communicating and learning in the traditional way that the rest of his classmates did. In fact, a 21st century Albert Einstein probably would’ve been diagnosed with a learning disorder. Obviously, behavioral and communication problems had no impact on his intellectual ability. Einstein went from problem student to Nobel Prize-winner in physics for his discovery of the photoelectric effect. His theory of relativity also topped the brilliant mind of Isaac Newton, and corrected the deficiencies of Newtonian Physics.

Harrison Ford. He began his acting career with a small role in a movie, and immediately fell in love with dreams of stardom, fame and fortune. An executive who worked with Ford on his first movie was quick to yank him back to reality. He took Ford into his office and told him that he would never succeed in Hollywood. Just to prove the executive wrong, Ford built an acting career that has spanned 60 years. During his career, he has starred in some of the biggest blockbuster films in history, including Star Wars and the Indiana Jones series.

Dr. Seuss. Born Theodore Geisel, the first manuscript from Dr. Seuss was rejected by 28 different publishers. Finally, world renowned publisher Random House saw the possibility of the places children could go and the creative genius behind a meal of green eggs and ham. Dr. Seuss went on to become one of the most successful authors of children’s books. His books have sold more than 600 million copies.

Vera Wang. Her first failure came when she didn’t make the 1986 U.S. Olympic figure-skating team. Going back to her love of fashion, she did wind up an editor at Vogue magazine. Failure found her again when she was brushed off for the editor-in-chief position at the magazine. Wang decided to reinvent her life at the age of 40, and began designing wedding dresses. What started as sketches has grown her into one of the premier designers in the fashion industry, and a fashion empire worth more than $1 billion.

Colonel Sanders. Before finding his seat on the throne as “The Colonel,” Harland David Sanders was fired from dozens of jobs – both in and out of the food industry. His quest to deliver fried chicken goodness to the people of America took him across the country looking for someone to see his vision and sell his chicken. Finally, a business deal in Utah proved that his recipe truly was finger lickin’ good, and thus Kentucky Fried Chicken was born. KFC is now one of the most popular food franchises in the world, and has over 18,000 locations.

Henry Ford. Early in his career, Ford all but ruined his reputation with a handful of failed automobile businesses. Manufacturing automobiles in the 1890s was a daunting, time consuming and labor intensive task. When Ford couldn’t get it right, investors became aggravated and pulled their funding. After a long search, Ford finally found the right business partner who had faith in his vision. Proving the importance of learning from your mistakes, Ford went on to found the Ford Motor Company, forever changing the automobile industry with the creation of the assembly line.

Saul Bellow. His dream was to touch the hearts of millions with the written word. However, his English professor, the famed Norman Maclean, quickly snuffed out that dream: He told Bellow that he showed no signs of literary greatness, and chalked him up to be a “dud.” Well, sure was one of the most successful “duds” of our time. He went on to win the Pulitzer Prize, the Nobel Prize for Literature, a Guggenheim, and the National Medal of Arts. Bellow’s other claim to fame is that he is the only writer to win the National Book Award for Fiction three separate times. He also received the National Book Foundation’s Medal for Distinguished Contribution to American Letters.

Failure is an inherent part of any journey to find success. Stopping at the first, tenth, twentieth, even fiftieth run-in with rejection or failure can mean you’re selling yourself and your dreams short. In the words of the latest Cadillac ad campaign slogan, “Only those who dare drive the world forward.”

Dare greatly, my friends.

Protecting Your Portfolio Against Market Downturns

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How can I protect my portfolio against large market downturns?

This is one of the questions I’m asked most often by clients. And I’m always frank with my answer: We can never eliminate downturns, risk or volatility. If you’re going to play the game, you have to be able to accept that there will be wins and losses. But, there is good news: We can apply proven principles that are designed to further the goals of today’s investor, aiming to increase returns, minimize downside risk and reduce volatility.

So, why then isn’t everyone walking around with a new found sense of investment peace of mind? Why isn’t everyone confident in their retirement nest egg?

Because many people – advisors and investors alike – still don’t truly understand the critical factors that impact your financial success. Much less how to build an investment strategy that adequately overcomes them.

Risk and Volatility: What’s the difference?

First, it’s essential to understand the role that both risk and volatility play in your investing success. Repeatedly, I see a large disconnect between the investor’s interpretation of what these things mean compared to what they really mean.

At its core, risk means the probability that your investment will lose money. However, I see investors routinely take unnecessary risk with their portfolio. They’ve been taught that greater risk means greater returns. This is the disconnect. Risk isn’t a knob you crank up to spit out a higher return. Cranking up the risk-o-meter only means that you have a greater chance of losing money, it doesn’t do much of anything in driving your returns.

Volatility – or standard deviation – is a measure of risk, and refers to the amount of fluctuation your investment returns may see. If your investment experiences increased volatility, its returns become more unstable. This diminishes your compound return, especially in comparison to the average return.

If an investment’s returns are erratic (they fluctuate up and down regularly), this means that the investment probably has a high degree of volatility. In essence, volatility has a direct impact on your returns.

It’s ironic, isn’t it? That risk – the one thing we can control when investing – has little to no impact on returns, while volatility – the one thing out of our control – has a large impact on your returns.

So, how can I protect my portfolio against large market downturns, you ask?

Investment Strategies Built for Modern Investors

It was in the middle of last year that I had an awakening, an epiphany you could say. One that opened my eye to the fact that even our firm didn’t have the best solutions for how to help our clients protect their portfolio against market downturns. Sure, we stuck to the traditional principles that have propelled investing academia to where it is today. We built well-diversified, adequately allocated portfolios. We determined our clients’ true risk tolerance, and invested them accordingly. We prided ourselves on helping our clients build a disciplined, sound approach to investing.

If we were doing everything “right,” giving our clients that best possible investment solutions, then why was anxiety over the market still running rampant among our client base? Why were they still feeling the sharp pains of market fluctuations?

It was in this moment that I looked up, and saw our slogan on our conference room windows: Making money work for people. Our mission statement echoed in my head: Educate, guide and counsel people to reach their full financial potential. These are our promises to our clients, our promises to the world. And our investment solutions weren’t living up to them.

With the help of new and improved research, we found the simple answer to our clients’ investing limitations: Traditional investment theories are incomplete.

So, we decided to do something about it.

Maximize Your Investing Success

To help our clients maximize their investment success and protect their portfolios against market downturns, we had to acknowledge the disconnect between traditional theories and today’s investors, the gaps that exist when comparing reality versus theory.

Our new momentum strategies are designed to fill in these gaps. While we kept a handful of traditional elements in place, we expanded upon them to include practical application for the real investor before and during retirement:

Avoid large declines. Period. As we said before, we can’t eliminate downturns, risk or volatility. Our momentum strategies are not designed to avoid declines; they can and do move with the market most of the time. However, they are designed to minimize the impact of volatility and avoid the large declines. The steep declines have the most potential for irreparable damage to your wealth.

Markets aren’t always priced efficiently and investors can be irrational. In a perfect world, investors wouldn’t take risks with their money or make emotionally charged financial decisions. Then we just might have a market that is priced efficiently 100% of the time. Unfortunately, we have irrational and risk-seeking investors, and large market participants who can influence prices. This means that stock prices can be bought and sold both at undervalued and inflated prices.

Fama & French were on to something. The 3-Factor Model created by the Nobel Prize-winning economist Eugene Fama is still used today to describe stock returns. In 2015, they extended the model to include five factors. They also discovered a persistent anomaly in the market – momentum –  which we believe to be the sixth factor. So, we designed our momentum strategies using all six factors.

Asset allocation matters. Remember, there is still something to be said about a portfolio that is well-diversified. Asset allocation accounts for 90% of portfolio returns. Investing isn’t just about choosing where to put your money, but choosing the right combination of stocks and bonds to help balance your risk to return ratio.

Understanding how the factors discussed here impact your investing success before and during retirement is only the first step. You then need an investment strategy that can truly overcome them.

 

7 Lifetime Habits of Millionaires

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“We are what we repeatedly do. Excellence then, is not an act, but a habit.”

Wise words from Aristotle. And a good reminder that what often separates success from failure is our own willingness to do what it takes to be successful. Yes, there are certain habits that separate the wealthy from the rest of the mortals. The good news is that these habits aren’t restricted to only a select few. With a little hard work, anyone can form the same habits of millionaires.

Good Habits Cultivate Success

Forming the habits for financial success doesn’t happen overnight, though. Ask any wealthy person how they got there, and they most likely won’t tell you that it was luck. Achieving financial success takes discipline – and constantly refining that discipline – throughout the entire journey. Discipline is how you get from Point A to Point B. One of the best ways to instill discipline is by forming and sticking to the habits that inch you closer to your destination.

In many instances, the destination is always evolving for successful people. A critical component to the wealthy mindset includes a long-term view of success. Once they achieve one accomplishment, they are often onto the next soon after. For them, success has no expiration date; rather, it’s a lifetime process. Their journey is a constant mix of setting goals and cultivating the necessary habits to achieve them. Essentially, the long-term view helps keep successful habits in play over a lifetime.

7 Lifetime Habits of Millionaires

Studying the successful habits of the wealthy can help you hone the skills for reaching your full financial potential. To get you started, here are seven lifetime habits of millionaires:

1. Rise and grind. Successful people tend to get up early and get to work early. After all, the early bird gets the worm, right? The wealthy are always striving to get that worm – both pre and post-millions. They aren’t afraid to put in long hours of work to get it, either. At the risk of throwing in another cliché, Rome wasn’t built in a day. Neither is financial success. Millionaires are well aware of this, and maintain the habit daily to maintain their wealth.

2. Stay in-the-know. It’s hard to make smart financial decisions when you don’t know what’s happening in the world around you. We live in a global economy; an event on one side of the world can easily impact the other. Millionaires are never in the dark when it comes to current events, whether it be finance specific or general world news stories. They make it a point to read the paper, watch and/or listen to the news and look at market trends.

3. Find a hobby. Despite its appearance, the life of a millionaire isn’t all about making money. At least, a healthy lifestyle isn’t all about making money. To be successful financially or professionally, you have to be passionate about things that don’t come with a zero on the end. These interests give your life a deeper meaning, and reenergize your mind and body so that when you do go to work, you’re the best you that you can be. Whether its traveling, family time, boating, surfing or painting, millionaires know the importance of “me” time.

4. Follow the golden rule. Or in other words, treat others the way that you want to be treated. You don’t have to be a ruthless shark, ready and willing to take everyone around you down to be successful. Karma tends to creep up when we least expect it; burning bridges today can come back to you tomorrow. Try treating your colleagues and peers with the same respect you would want them to give you. Most millionaires have discovered that taking a humble approach has a greater impact in the end.

5. Reflect on the past. One of the most critical factors to reaching your full financial potential is the ability to learn from your past mistakes. There is no tougher critic on yourself than you. As a result, we will often keep gambling with our money to fill the void of financial loss or we may even forsake the market altogether. But if you can’t reflect on what went wrong and learn how to overcome past mistakes, personal growth is stunted. Millionaires often say the best lessons they learned were from themselves.

6. Keep going. The motivation to be successful can light a fire in all of us. The flame just burns brighter, stronger and longer in some people. For many millionaires, perseverance isn’t just a habit, but a way of life. Even after reaching their full financial potential, the drive to be successful doesn’t leave them. Their long-term view makes them well aware that there will be stumbles along the way, they may even fall. But they stick with it through the good and the bad.

7. Set and refine goals. To touch on an earlier point, setting goals for is a crucial ingredient for success. They’re the milestones that help you reach your destination. But, what happens once you’ve reached your destination? Well, many millionaires would tell you that nothing changes. Just because you’ve reached a certain level of financial success doesn’t mean it’s game over; there is more success to be had! Millionaires often revisit their goals, and refine them based on their current circumstances.

Why Does it Matter to You?

Enacting all of these habits – or even one of them – doesn’t guarantee that you will become a millionaire. Not only that, but we all have different definitions of financial success; for some, becoming a millionaire may not be one of them. But there is a greater lesson to be learned here: We are what we repeatedly do. Forming successful lifetime habits can only increase your chances of reaching your full financial potential.

Notes from a Billionaire: Ray Dalio’s 6-Step Success Formula

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Life is a game – even Milton Bradley would tell you so. Each of us plays the game differently, making the moves we think will get us to our ideal ending, and in turn we end up with different results. So, why do some players experience much more success in life than others? And if they can do it, how can you be just as successful in life.

Successful players in a game understand one critical fact to winning that game: Every game has principles that need to be mastered in order to win. Life is no different; establishing principles gives us a way to successfully deal with the “laws” of life. And when we are aware of many different principles and understand them well, our ability to effectively live and interact with the people and world we live in is enhanced.

Ray Dalio’s 6-Step Success Formula

Ray Dalio is one of those successful players. Now worth an estimated $15 billion, Dalio is the founder of Bridgewater Associates, the world’s largest hedge fund. Clearly, he understood that there were certain principles of success to master in life, and understood the importance of perfecting them.

Dalio has long said that he has a systematic philosophy that guides him in both his everyday life and business. He recently laid this out for the masses in his ebook Principles.

Taking the essential revelations from Dalio’s Principles, the 100+ page manifesto can be condensed into a six-step process that you can follow to achieve greater success in life:

Step 1: Create Your Own Goals

Many of us adhere to the idea that learning to perfect what we are taught is the end-all path to success. Dalio would disagree with you. For him, the goal of learning is to get what you want. This is why figuring out for yourself what you want and what you have to learn in order to get it leads to more success. Start by asking yourself what you want most out of life, and what are your most important life goals. Keep yourself grounded along the way with these “truisms” from Dalio:

1. You can have virtually anything you want, but you can’t have everything you want.

2. In order to get what you want, the first step is to truly know what you want, without confusing goals with desires, and without limiting yourself because of some imagined impediments you haven’t thoroughly analyzed.

Step 2: Come up With Independent Opinions on How to Achieve Your Goals

Echoing what we previously touched on in Step 1, a core part of Dalio’s philosophy lies in becoming an independent thinker. Agreeing with the consensus means you are agreeing with what you have been taught by others, making it much harder for you to gain anything more than the average. But, going against the consensus also means there is a large chance you can be wrong – always stay humble. For Dalio, the key to being successful in life comes from finding when the consensus is wrong and you have an independent opinion that is right.

Step 3: Stress Test Your Independent Opinions

Dalio notes that one of the biggest problems we face today is that too many people are walking around with wrong theories in their heads. To take this a level deeper, perhaps our biggest mistake is not being able to see ourselves and those around us objectively. To make sure he isn’t one of these people, Dalio does the following:

1. Encourages a culture of transparency at Bridgewater. For instance, all meetings are recorded. This allows people to receive feedback from others whom they otherwise wouldn’t, helping them learn to bypass defensive tendancies and truly understand and grow from the feedback.

2. Shares his theories with others. Dalio had the smartest people he could find challenge his opinions, and find where they believed he was wrong. The goal was to listen to the logic others used to draw their conclusions and then explain why he didn’t come to the same conclusion. This is where Dalio perfects being “open minded and assertive at the same time.”

3. Remains skeptical of his own ideas. Dalio regularly reflects on his ideas, challenging himself to assume that they are wrong. This helps him avoid overconfidence and pushes him to keep gathering information until he’s sure that his idea is right.

Step 4: Reflect on Your Psychological Pains and How to Overcome Them

It’s a proven fact in investing that the pain of loss is felt much deeper than the gratification of gaining money. Instead of learning from the situation that caused us pain, we often enact our “fight or flight” response. Investors keep trying to correct the loss or they run away from the market.

The same is true with consequences that arise from life decisions we have made. Dalio stresses the importance of not only being able to learn from our mistakes and improve the next time around, but also the importance of overcoming the pain associated with the reflection process. We can either allow that pain to stand in the way of our progress, or understand how to manage pain to produce progress. Here are some reflection “truisms” from Dalio:

1. You will be much more successful if you focus on design and diagnosis rather than jumping to solutions.

2. Tolerating problems has the same result as not identifying them. Both stand in the way of getting past the problem.

Step 5: Turn Your Proven, Independent Opinions Into a Machine

Dalio uses the metaphor of a machine to represent systems you can create in your life that will produce consistent, predictable results. Those who are most successful are able to act as two people when designing their machine:

1. The observer who creates the machine and monitors its performance.

2. The participant who makes the machine work.

Not only can they assess and improve how their machine works, but they can also be objective about themselves as a participant. This lets them put themselves in a position to win based on their unique abilities. Essentially, the machine is a feedback loop.

Step 6: Turn the Machine On

Now that you’ve done the grunt work of identifying what you want, what you have to learn to get it, challenging your own thoughts and ideas that you believe to be right and designing your machine, there’s only one thing left to do: Turn it on.

Here are some take-action “trusims” from Dalio:

1. It’s critical that each day you know what you need to do and have the discipline to do it.

2. People who succeed at this stage can reliably execute a plan. They tend to be self-disciplined and proactive rather than reactive to the blizzard of daily tasks that can divert them execution. They are results-oriented. They love to push themselves over the finish line to achieve the goal.

Why Does it Matter to You?

To wrap things up, I’ll leave you with one final thought:

“Successful people are 100% convinced they are masters of their own destiny. They’re not creatures of circumstance, they create circumstance. If the circumstances around them suck, they change them.” -Jordan Belfort (the real-life Wolf of Wall Street)

Happy success hunting.

4 Important Questions You Should Ask About Personal Finance

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It’s long been the impression that the most important question you can ask in your financial journey is “Where should I invest my money?” And yes, this is an important question. After all, smart investments can mean the difference between financial success and failure. But what about the questions that must come before that, the important questions about personal finance that play a key role in reaching – and protecting – your full financial potential?

The Wrong Question Can Lose the Race

Today, personal finance has almost become a rat race of sorts. We’re all out here scrambling for retirement, chasing an elusive number that we THINK we’re going to need to survive once our income stops. But what’s your number? How do you know what the cost of living will be 15, 20, 30 years down the road? How do you know what life changes you may face?

Here’s the ugly truth: No one, not financial advisor extraordinaire or your next door neighbor, knows the answer to this question.

We all fear the unknown. And retirement is one of the biggest unknowns we will ever face. So, we’ve become consumed with where to invest our money. Many investors chase returns, flip flopping their investment strategy based on the “next big thing,” and try to time the markets for when to get in and get out. Some investors have become so fearful of the market that they pull out at the slightest sign of volatility.

We’re obsessed with asking “Where should I invest my money?” It’s the first and the last thing on our mind throughout our financial journey.

But when you make an investment decision, it’s more than just putting your money in a portfolio. This is one of the most complex decisions you will make; it has tax implications, estate planning implications and liquidity implications, just to name a few.

Four Questions You Should Ask About Personal Finance

Making one investment decision sends a ripple through your entire financial life. This is why it’s essential to address that ripple effect before asking where your money should be invested.

Here are four important questions that you should ask about personal finance when making an investment decision:

1. How is the account titled? The way in which your account is crucial. Having the wrong title can mean negative consequences for the health of your estate. For example, say you’re opening a joint investment account with your spouse. If you title the account as Joint Tenants With Rights of Survivorship, it means that you each own 50% of the asset. Ideal, but it also lacks in credit protection since they can go after assets in your name – i.e. 50% of your joint investment account. If you title the account as Joint Tenants by Entirety, you each own 100% of the asset. This offers a much higher level of credit protection, as the asset is owned in both of your names. Creditors can’t go after those assets. How is your account titled? A simple, but powerful question.

2. What are the tax implications? If you’re investing in a qualified account, this is pretty cut and dry. You’ll either pay tax on the money now, or tax on the money when you pull it out. But when it comes to unqualified accounts, investors often forget the importance of tax management. In a recent study by U.S. Trust, more than half of the high net worth investors surveyed said that minimizing the impact of taxes was more important than pursuing a higher return. Sure, you can get a 12% return, but what’s that investment costing you in tax? After all, your net pay – how much you’re making in returns after taxes – is what counts. Poor tax management adds up over the long haul. It’s one of the easiest ways for investors to forfeit large portions of their annual gains.

3. Who will be the beneficiaries of your investment accounts? This brings us back to estate planning implications. Determining who your assets will pass to should something happen to you is key in personal finance. You have several ways of doing this, but for the sake of this article we will keep it simple. Every investment account will give you the opportunity to specifically stipulate your primary and contingent beneficiaries. Just be sure you update them regularly – your beneficiary information trumps what’s stated in your will. You can also set up a trust to hold your assets, titling your investment accounts accordingly. This offers maximum asset protection, and ensures that your assets will be passed on according to your specific wishes.

4. Do you even have enough core liquidity to begin investing? In its simplest form, investing impacts your rainy day fund, your ability to save liquid dollars. It may not make that big of a difference at first, but several investment accounts later your dollar stretches less and less. Once you invest your money, it’s not meant to be touched – whether for retirement or not. It’s meant to be invested, to grow and produce a return. You have to have a place to turn to when life happens and you need money NOW. This is why it’s so critical to have at least six months of core liquidity built up before you start investing. If there’s one thing that I’ve learned in this business, it’s that life can and will happen. You have to be able to react effectively if and when it does, or you may end up risking your financial success.

Why Does it Matter to You?

The world of personal finance isn’t just about picking the right investments. It’s about building a foundation centered on one goal: Protecting your life’s work. Our financial lives are so much more complex than where we put our money. That’s just one decision that affects several areas of our financial life. When you only ask one question, you fail to evaluate the critical factors that can impact your financial success.

Reaching your full financial potential requires more than chasing investment returns. You have to continually optimize and protect your complete financial position, giving yourself the ability to effectively react to whatever life may throw at you.

7 Things Wealthy Investors do With Their Money – that you should consider too

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We can learn a lot from watching how the wealthy handle their money.

Perhaps that’s why there has been so much “noise” created in the industry, though. Everyone wants to know what the secret is to successful investing. We want to know the secret to creating sustainable wealth. And there are plenty of talking heads who claim that they’ve found it.

But when it comes down to it, there isn’t a lot of variation in how the ultra-wealthy seek to keep their dollars growing. In fact, they have a lot more in common in how they manage their money in comparison to what they don’t do. Take Warren Buffet for example, he’s stuck to many of the same investing principals for decades. And who wouldn’t kill for the chance to spend 24 hours in a room with Warren Buffet learning his “age old” investing habits?

7 Things Wealthy Investors do With Their Money – that you should consider too

U.S. Trust completed a recent survey of nearly 700 high net worth investors (those with investible assets of at least $3 million) that explored these commonalities. Here are seven key findings from the survey that a majority of high net worth investors do with their money that you may want to consider doing too:

1. They understand the importance of liquidity. Some may see keeping substantial amounts of cash on hand as being too conservative or having a fear of the market. A high net worth investor would be quick to tell you otherwise. More than half of these investors keep their liquidity high so that they are in a position to act quickly when great opportunities present themselves. Not only do they make sure that they have access to cash before they need it by forming healthy savings habits, but they also make sure they have access to multiple sources of liquidity.

2. Large cash positions are commonly found in their portfolios. To add to our above point, nearly 6 in 10 high net worth investors have at least 10% of their portfolio in cash. Remember that for these investors, this isn’t sign of ultra-conservatism. It’s a sign of their desire to capitalize on the right opportunities at a moment’s notice. This serves as another source of liquidity, allowing their cash on hand to flow opportunistically.

3. Their investment philosophy is geared toward the long-term. Six in 10 high net worth investors seek well-balanced, risk-managed growth. Even if it means lower returns, it was still more important for them to lower the risk of their investments. The wealthy keep their focus on funding long-term goals, while keeping near-term opportunities in mind as they go. A vast majority (83%) have made their investment gains through a long-term buy and hold strategy. Take it straight from Warren Buffet, who has said time and again that money is made in investments by investing, and by owning good companies for long periods of time. This disciplined approach to investing helps the wealthy minimize their emotions and tune out market noise.

4. They make tax-conscious investment choices. More than half of high net worth investors say that it’s more important to minimize the impact of taxes when making investment decisions. Even more important than pursuing higher returns regardless of the tax consequences. This can be attributed to the point that really counts is your net pay – how much you are really making in returns after taxes. Poor tax management will add up over the long haul, and can easily cause you to sacrifice large portions of your gains for the year.

5. They invest in tangible assets. Almost half of high net worth investors own some sort of tangible asset, such as a real estate investment. These assets can produce income for the investor, and grow in value over time. While choosing what to include in your portfolio aside from stocks and bonds should be an individualized decision, there is no doubt that the wealthy understand how tangible assets can be a key element for a well-rounded portfolio.

6. Many know how to use credit as a wealth building strategy. Nearly 65% of high net worth investors agree that credit is a strategic way to build wealth. While 8 in 10 say that they know how to use credit to their financial advantage, it’s worth noting that this strategy does come with some risks. Credit can be costly. But there are small ways that you can accomplish this as well, such as using a credit card with rewards for spending you would be doing anyways. Instead of racing to pay down fixed, low-interest loans (mortgages, student loans, etc.) consider paying them down on schedule and saving or investing the extra money.

7. Their interest in impact investing is growing. This is the practice of investing into companies and organizations with the intention to generate a beneficial social or environmental impact alongside a financial return. Over the past year, the percentage of high net worth investors who own impact investments has tripled. Of those investors surveyed, 11% currently own impact-focused investments in their portfolio. Almost half of these investors believe companies that adhere to good social and environmental practices are less risky. Not only that, but they want to invest in a positive social impact and support issues they strongly care about.

The 10 Simplest Ways to Make People Like You

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The majority of people would say that they are likeable. I myself would say the same.

The difference is whether or not people would call themselves charismatic. Whether or not they would say they have that spark that can automatically enchant anyone they come in contact with.

Charisma: Born With or Learned?

Take Gary Vaynerchuk for example. He grew his family’s wine business from a $3 million business to a $60 million business in just five years. He now runs VaynerMedia, a prominent digital agency that day trades attention and builds businesses – Gary’s own personal mantra. Hundreds of thousands of people tune in every week to watch the AskGaryVee Show. Thousands of people also watch his DailyVee show, where he uses a handheld camera to record what he does on a daily basis. He’s booked at speaking events for major corporations and events almost weekly. And they pay big bucks for him. That’s charisma.

Imagine being able to have that kind of effect on people – to be able to sell your way to a $60 million business, or to be fascinating enough that people take time out of their day to watch what you’re doing with yours.

How much more successful could we all be, both personally and professionally, if we all came hard wired as “charismatic?”

So, are you simply born with charisma or can anyone be taught the art of lighting up a room? The word itself comes from the Greek meaning for “gift,” which would imply that one must be born with it. But, isn’t charisma also the difference between Marilyn Monroe and Norma Jean Baker? Isn’t it the difference between Lady Gaga and Stefani Joanne Germanotta? Lady Gaga sells out Madison Square Garden, influences the behavior of her massive fan network and has captivated the loyalty of millions. Marilyn Monroe possessed similar qualities during her career.

But if Stefani Germanotta or Norma Baker walked into a room, would heads even turn? Comparing a person’s alter ego (i.e. Lady Gaga) to their given identity (i.e. Stefani Germanotta) suggests that charisma isn’t always something you’re born with. It can be taught.

The 10 Simplest Ways to Make People Like You

What’s the secret? Do charismatic people have skills that the rest of us “ordinary” people can learn? Definitely!

Here are 10 ways that you can become more charismatic, and are the simplest ways to make people like you. (Credit to Robert Cialdini, who identified some of these in his book, Influence: The Psychology of Persuasion.)

1.People tend to do business with people they genuinely like. Behave in a way that makes you likeable to others. Give people your full attention. Have a positive attitude. Be polite and patient.

2. People value other people who can keep their word. If you make a promise, follow through on it. Make sure you do it by the promised deadline, if not sooner.

3. People trust people who truly demonstrate they have their best interests at heart. This pivotal shift happens when you give advice that benefits them as much as, or even more than, it benefits you.

4. People want to work with people who are experts in their field. So, become one. Practice, train, educate yourself, research trends and never quit studying the experts around. As you build your expertise, share it with your audience. Making your knowledge available to others validates your status as an expert.

5. People like people who are vulnerable. There is a fine line between charismatic and intimidating. Even the most charismatic humans are still that, human. Encourage a human connection with others by showing that you’re not always perfect. Admit your shortcomings.

6. People want to give their money to people who are “real” and honest. You must truly believe that always being truthful is more important and powerful than lying. Not matter what the circumstances may be.

7. People respond best to people who are great listeners. There’s an old saying that sums this up perfectly: You were given two ears and one mouth for a reason. Listen twice as much as you talk.

8. People feel comfortable around people who are similar to them. Always try to identify what you have in common with other people. Use these commonalities to prosper a connection.

9. People like people who are humble. Don’t brag about your successes. Mention them when necessary, but when someone brings them up, quickly move along and switch the topic back to the other person.

10. People want to be include helpful people in their network. We want to be around people who make our lives easier. Make it a personal standard to tend to the needs of others, even when your purpose may be to help yourself.

Did you find that you already possess several of these ingredients for charisma? Good. Now practice and refine them even more. Which ones do you still need to work on? Find the drive to work on them every chance you get, no matter how casual the conversation or interaction is.