James Clear, author of the popular book Atomic Habits, put it best when he said:
“You are the outcome of your habits.”
It makes sense, right?
The habits you practice on a daily basis define who you are, which is why as an investor you want to make sure you are intentional about your habits.
Implementing the right habits can often be the difference between having a high net worth and losing everything overnight.
So, what makes for successful investing habits?
Here are five habits we believe differentiate the good investors from the great.
Let’s dive in.
1. Save and invest regularly
This is a foundational habit that every investor should be practicing: slow and steady wins the race.
Not many of us receive an unexpected inheritance or a big bonus to start investing with. Most of us have a monthly income along with our expenses and commitments.
That means that saving and investing needs to be part of your monthly budget. It needs to be regular and it needs to be a habit. How much? It depends on your goals, but investment experts recommend saving at least 10% of your monthly income. If you save and invest regularly, your investments will grow steadily over time.
Successful investors prefer saving and investing every month, rather than investing whenever they feel like it or when the market timing is right. Why? Because they are strategic bout how they invest. It’s not gambling.
2. Diversify your assets
Diversifying your investments is what allows you to minimise risk while increasing your overall return. It allows your portfolio to remain stable during a market downturn, or for your portfolio to grow even faster during a bull market.
The best investors don’t put all their eggs in one basket, which means they don’t put all their money in one asset or in one company. With diversification, you get a better balance between your risks and returns, and that helps you outperform those who don’t.
The best investors invest in both the stock market as well as alternative investments
3. Know who you are
The best investors know themselves.
Understanding your emotions and how you react to different market trends is a core investing habit. If you are someone who gets anxious when the stock market goes down, then it’s best not to invest in volatile assets. If you’re an investor who prefers managing your own portfolio, then you want to pick a strategy that allows you to be in control.
The funny thing is this:
You really won’t know what you’re most comfortable with until you do some experimenting.
That’s why it’s worth dipping your toes into various types of investments first. Once you do know what works best for you, you then want to create a plan and stick to it. This could be creating a specific asset allocation that fits your goals and needs, and setting a fixed monthly investing budget.
The best investors know how they react to market trends and set up a plan and strategy to fit their personality.
4. Invest long term
The most successful investors are in it for the long run.
That’s because they know that time in the market beats timing of the market.
So, if you want to make the most of your investments, you want to be maximising the use of compound interest. The first 5 years of investing won’t add a lot to your portfolio: but the last 3 years of a 30 year investing career will. That’s where the difference is.
The best investors are disciplined and stick to their plan – looking at the long term. Often, having a big goal such as FIRE or a college fund can help encourage long-term investing.
5. Set and forget
Unless picking stocks is your passion, most people want to set and forget their investments.
They don’t want to check the news every day, learn what a P/E ratio is and rebalance their portfolios every week. Most investors treat investing as an engine to grow their net worth and make more money, not as a leisurely pastime.
That’s why the most successful investors prefer investment strategies and assets that are low maintenance.
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