Personal Finance

3 Traits the World's Best Investors All Share

Source: TaxRebate.org.uk via .

Source: TaxRebate.org.uk via Flickr .

The first involves the type of companies you buy in your investment portfolio. Most of you have probably heard the adage about putting all your eggs in one basket. Throwing most or all of your money in a single investment or stock could leave you hurting if that investment goes south. Instead, you should spread your wealth over a number of stocks and industries, with the goal being to give yourself the best chance to hit a home run. Remember, not every investment has to be a winner so long as you find a few big gainers from time to time and stick with those winners over the long run.

But diversification also matters outside the stock market. It means giving yourself the best chance to succeed with a number of other tools at your disposal. For example, a tax-advantaged Roth IRA allows you to contribute up to $5,500 in 2014 (or $6,500 if you're 50 or older) and invest that money while never paying another cent in tax on the gains so long as you make no unauthorized withdrawals. Keep in mind there are income limits on IRA contributions, so you'll need to see if you qualify.

In addition to IRAs, many employers offer their employees 401(k)s, which are also tax-advantaged and often come with matching contributions from the employer -- that's free money! Self-employed persons can also set up retirement plans for themselves, ranging from 401(k)s to simplified employee pensions.

Finally, consider the impact that Social Security will have on your income later in life. Delaying benefits until age 70 can net you 76% more than you would receive by taking your benefits at age 62. By diligently saving and investing, you may be able to comfortably live off your retirement nest egg until you hit age 70 so as to maximize your Social Security benefits. However, every individual's financial situation will be unique, and some retirees need the supplemental income that Social Security provides as soon as possible.

No. 3: Focusing on the long term and ignoring the white noise

Lastly, the world's top investors all share the trait of being long-term-focused.

Source: Dr. Wendy Longo via Flickr .

The best investment strategies rely on compounding gains and time to build wealth. It's crucial to stay invested and let compound interest work for you, rather than moving in and out of stocks in an attempt to time the market. In fact, trying to time the market can wind up being disastrous . According to J.P. Morgan Asset Management, using data collected from Lipper on the S&P 500 between Dec. 31, 1993 and Dec. 31, 2013, missing the 30 best trading days in that roughly 7,300-day period would have left an investor earning an average of less than 1% per year. In contrast, staying fully invested through the dot-com bubble and the Great Recession would still have produced a 483% total return for investors.

The point is simple: Timing the market with any consistency over the long term is practically impossible. Instead, influential investors like Peter Lynch advise investors to stick to companies they understand and believe in, and to stay invested in those companies over the long term. In other words, think like Warren Buffett and ask yourself this question: If the market closed for 10 years tomorrow, would I be happy holding this stock all the while? If you can answer "yes" for all of your portfolio holdings, you're probably on the right track.

The secret is no secret at all

Although $67 billion may be a bit out of reach for most us, the secret to successful investing is no secret at all. As these aforementioned investing moguls have preached, starting to save as early as possible, diversifying your income stream across stocks and other forms of income, and having a long-term view on those investments will be your key to financial success.

How to get even more income during retirement Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

The article 3 Traits the World's Best Investors All Share originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter servicesfree for 30 days. We don't all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks