The Most Critical Success Factor For Investing

Psychology plays a huge part in investing success.  Your fears and desires often dictate whether you win or lose when investing in the stock market.  This is particularly true for long term income investing.  In fact, over the long run, its just as important as finding the best stocks that pay high dividends.  This is due to the fact that without having your psychology under control, even the best portfolio will crash and burn.

Understanding your short comings is the first step on the road to consistent success. Here are four reasons why most income investors fail even with the best fixed income investments.

1.  Only focusing on the highest yielders

While every income portfolio should have several ultra high yielding stocks, the portfolio should not be focused on these names. Ultra high yields come with ultra high risks. This means that a portfolio built from just ultra high yielding stocks is simply too risky.

2.  Fear of High Prices

Many of the best long term dividend stocks have a high share price. This is because of the fact that they are in demand due to the steady and growing dividend yields. Investors often shy away from stocks with high prices which eliminates many of the best long term dividend stocks. It’s critical to always remember that price does not equal value. Price is truly irrelevant when it comes to percentage returns on a portfolio.

3.  Fear of taking losses

Our entire lives we are taught to win. Investing requires losing to win so that is a difficult concept for many investors to grasp. No matter how good an investor you are, you will make mistakes and have losses in your portfolio. Recognizing loses and taking the loss is the only way to prevent a single large loss from damaging your portfolio.

4. Lack of Patience

Income Investing is a game of patience.  It is far from a get rich quick undertaking.  It relies on compound interest and years of reinvestment to pay off in a big way.  Understanding this fact is a key to success.

Source: http://tradingtips.com/daily/dividend-stocks/critical-success-factor-investing/