11 Key Signs You’re Making Smart Investment Decisions
Written by
John Csiszar
Edited by
Gary Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
There are countless books, articles and guidelines about how to save and invest properly, but there aren’t nearly as many pointing out the signs that you’re already making smart investment decisions. In fact, if you’re a diligent, driven investor, you might even overlook the indications that you’re actually doing quite well.
This is why performing regular checks on your status is a critical part of the process of succeeding as an investor over the long run. Below is a list of key signs that you’re making smart investment decisions. You can be a successful investor without achieving all of them, but if even a few of them apply to you personally, it’s likely that you’re ahead of the game when it comes to your savings and investments.
You’re Not Living Paycheck to Paycheck
According to research from Lending Club, roughly 60% of Americans are living paycheck-to-paycheck. This means that they need their upcoming paycheck to cover their next month’s financial obligations.
Living paycheck-to-paycheck is relatively common even among high-income consumers, with 49% of those earning at least $100,000 per year indicating they are in the same situation. So if you find that you are not living paycheck-to-paycheck, you are ahead of the game.
Your Net Worth Goes ‘From the Bottom Left to the Upper Right’
An common expression on Wall Street is that you want to look for charts that go “from the bottom left to the upper right.” What this means is that if you look at a financial chart — of your own personal net worth, for example — you want to see the line on that chart going up over time, from the bottom left corner of the chart to the upper right corner. This indicates that your wealth is moving in the right direction.
You’re Out of Credit Card Debt
Debt is a financial albatross, particularly high-rate consumer debt like credit card debt. If you find that you don’t have any balances on your credit cards at the end of every month, it means that you’re financially disciplined and have ample earnings and savings to meet your needs.
You Have Cash Reserves for Multiple Needs
Cash reserves for things like emergencies, gifts, travel, college funding, travel or a wedding are a way to avoid letting yourself fall into debt. When most things that are likely to occur in your life are already pre-funded in your savings accounts, it also removes a lot of stress from your daily life.
Your Retirement Accounts Are Maxed Out
Not many Americans can afford to max out their retirement accounts. While the annual IRA contribution limit is just $6,000 ($7,000 for those 50 and older), 401(k) plans have a much higher limit of $22,500, or $30,000 for those at least 50 years old. To save $30,000 per year in a 401(k), you’d have to sock away $2,500 per month, putting you in the elite among American savers.
You Don’t Lose Sleep Over Your Finances
According to the American Academy of Sleep Medicine, nearly 87% of Americans have lost sleep at night due to financial concerns. If you don’t have this concern, then you should consider yourself fortunate. It likely means that you’ve got all of your financial bases covered and don’t have to worry about any temporary setbacks.
You Have a Written Investment Plan
Just like you’re much more likely to reach an unfamiliar destination if you have a map, you’re much more likely to succeed with your investments if you have a written plan. A comprehensive investment plan is not only a road map to your financial goals, it can also help keep you on the right path when markets turn bad and emotions enter the decision-making process.
You’re Earning Passive Income
One of billionaire Warren Buffett‘s most famous quotes is, “If you don’t find a way to make money while you sleep, you will work until you die.” If you’ve found a way to earn passive income, such as from rental properties or stock dividends, then you can earn money even when you’re not actively paying attention to it.
You Don’t Panic When the Market Is Down
If you can avoid panicking when there’s a bear market or your investments are down significantly, it’s a good sign. It likely means that either you have enough saved that a temporary downdraft won’t affect you much, or that you view selloffs as an opportunity to add to your investments when they are cheaper — or both. In either case, it’s a good sign that you’re on the right track and have the right mindset.
You’re Earning Even on ‘Idle’ Cash
Although your cash reserves will never make you rich, there’s no reason in letting them sit idle, especially in today’s interest-rate environment. Most online savings accounts will pay you more than 4% in an insured account, while short-term Treasury bills will pay you over 5%. Since your “idle” cash — such as your emergency fund — is just sitting there anyway, it’s a good sign if you’ve got the foresight to earn as much as possible on it while still keeping it safe.
You Focus on the Big Things, Not the Small Ones
Although saving a few bucks by drinking coffee at home instead of at Starbucks can provide a boost to your monthly budget, it’s not likely to get you all that far in terms of generating long-term wealth. But if you invest as much money as you can as early as you can, if you continue to earn or negotiate a higher salary, and if you keep out of debt, you’re likely making serious progress towards your financial goals.
More From GOBankingRates
