6 Steps to Becoming a Better Investor

Following these six steps now can help small-business owners grow and protect their future investments.
Contributor, Amex OPEN Forum
September 24, 2012

Nobody is an expert from the word "go." Even investors learn and refine their skill sets over time. Whether you're just starting out investing in your small business's future, or you're a bit more seasoned at the market, there are certain basic ideas that, if implemented today, will reap benefits tomorrow. 

Let's look at what can make a difference in any small-business owner's investment portfolio, and the six steps you can take today, to be a better investor tomorrow. 

Revisit your relationship with investment news. One key step you can take today is to practice an arms-length relationship with investment and financial news. Remember that newspapers and Websites want to attract readers, and so they do so with headlines that scream for immediate attention. Problem is, market trends and the eventual way that a company, cluster of companies, or a business sector will work out depends upon time and patience. The future is seldom immediately determined. Don't rush to decisions based on what you see, hear or read. 

Diversify your portfolio. Are you focusing on only one or two investment sectors? Say, precious metals and healthcare? The future for a finely tuned investor is to key the kinds of stocks held into more than just a few components of the market. What that means is, diversify. It's standard advice, but always worth reiterating. As one business sector may flag, another may become robust. Even if you haven't got a perfect balance of bullish, upticking stocks to offset your more bearish holdings, you also won't have all of your small business's investment account tied up in one temporarily troubled sector. 

Think "smaller" stocks. Continuing with the idea of diversifying your portfolio, one rut that investors sometimes fall into is that they skew too far away from lesser-known entities. Everyone knows that certain giant corporations suggest a stable investment, but you're also looking for growth, not just the relatively modest guarantees of a proven stock's returns. Working with your brokers, your advisers and your own instincts, use part of your portfolio to explore those smaller businesses, those that reflect the strengths you've built into your own company, that promise future higher values for initially higher risks.

Balance your investment Team. Advisers are important. Even if you're an individual investor, knowing yourself and understanding your own investment tendencies will help you to choose the team with which you work. Whether it's your broker or your small-business partner (or your husband or your wife), take the step of choosing the right people. For example, if you're a hot-blooded trader type, you want advisers who will persuade you to think twice, or if you're overly cautious you'll want people who will urge you to make a move. Making these changes today will front-load you for good decision-making tomorrow. 

Protect yourself against "flush" investing. If you've had a windfall, psychologists tell us that you're more likely to put more money into a risk than you would before that cash came to you. That means you stand to lose a lot more when things are going well, because you're blowing out all that newly accrued cash. Take this step to protect yourself: create savings out of a portion of every successful investment. Keep that money out of the pool you'll put into stocks and it will be there for your small business to fall back on in the future. 

Plan for the taxman. Here's the deal with becoming a better investor: it's likely to cost you more in taxes. Once you're holding assets in the healthy seven-figure dollar range, it's time to make some strategic moves to hedge against giving away too much of that money later. One of these steps is to take advantage of an estate-tax exemption that expires in 2012. If your assets are at $5 million, read the details of it here, and think about where you can make some gifts that offset the IRS.

In addition to writing about social media and content strategy, James O'Brien blogs for Contently about business, politics, technology, and travel. He has contributed as a ghostwriter to several recent publications on the media, technology, and social change. He is a correspondent for Boston University's Research Magazine and he has written extensively as a news correspondent for The Boston Globe. He joined the caption-research team for photo-essayist Rick Smolan's new book, The Human Face of Big Data, in 2012. James blogs via Contently.com.

Contributor, Amex OPEN Forum