“Successful Investing takes time, discipline, and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
– Warren Buffett
In today’s world, savings are not enough for financial security. This is because the inflation rate is rising, bringing down the value of the cash we possess as a saving. Also, idle money in a locker or bank account is an opportunity lost because this money has the potential to earn more income when it is invested in other assets. So people should start investing regularly rather than just saving money.
Investing is placing your money into something that can earn you money over time, thus growing your wealth. It involves getting a share in the company or any other asset. People make a profit when the investment value increases after buying an asset. Investors can realize this profit after selling an asset. Some purchases will also give a regular income, like dividends on stocks. One doesn’t need to sell their assets to receive this income.
Investing can be a difficult task, so developing good investing habits, like planning, and investing regularly, can help you build wealth and be prepared for any financial emergency.
Why is building an investing habit essential?
Utilizing the power of habit is one way to achieve success. Having good investing habits will help build the ladder toward long-term goals and make better investment decisions from a personal finance perspective. These habits are often small changes in daily behavior but can bring immense changes. For example, a simple routine of making the bed after waking up can set the tone for the entire day. Building a smart investing habit is more sustainable compared to making significant changes in a short span.
In investing, the most difficult part about investing money is not deciding where to put the money. Instead, it is to invest and continue investing through good and bad times. People make irregular investments and then cease when equity prices decline. Due to the media’s portrayal of falling stock prices as a catastrophe, most investors are accustomed to this. Investors can achieve success only if they are consistent and don’t fall for traps.
Therefore, it is vital to develop investing habits. It becomes established in your habits, occurs automatically every month, and you don’t have to fight any inertia to invest. The intriguing part about routine is that it can spread. Developing a little habit in one area of your behavior might catalyze additional behavior change. The vital benefit of forming an investing habit is peace of mind, these benefits of investing become visible quickly while encountering a crisis. For example, one can deal with emergencies without borrowing at a high-interest rate or selling investments at a loss when they have good investing habits.
Investing habits that can change your life:
Do not go with the emotions: Emotion is the driving factor of every human being. The impact of the feelings is more than one would like to acknowledge. Emotions are so powerful that we fall prey to their effects even when forewarned. For instance, many investors stopped investing after the 2008 stock market crash, fearing losses. After this event, people who abstained from the stock market actually missed out on the longest bull run in history (2009-2020) due to their fear. So investing based on emotions is a bad investing habit. But resisting such emotions when in the throes of a stock market decline or bear market isn’t easy. The first step in avoiding emotional investor behavior is to change your mentality.
Quit thinking of your investments as short-term purchases and stop obsessing about the daily changes in their value. The assets, especially stocks and mutual funds, will increase and decrease in value over time, but the stock and real estate markets have always appreciated.
Invest in products with a low expense ratio: Investment costs can bring down the returns to a great extent. Investment costs usually involve brokerage, commissions, and other fees. They can significantly influence the value of the investments over time since the prices lower the amount invested in receiving the compounding benefits. For example, flat charges can be effective only in cases where the number of transactions is large enough to allocate the expenses. Recognizing the influence of costs on the investments and evaluating the costs associated with each investment before committing will go a long way toward ensuring that the money is working for the investor.
Having a portfolio for different financial goals: In the financial journey, most investors build investments from their savings with no specific objective or target in mind. With no apparent link to the financial goals, these investments grow into a giant money pool over time.
Due to this, despite making good savings and investment efforts, the household is unsure of its financial objectives’ readiness.
This difficulty may be solved by having a properly divided portfolio for each financial aim. Smart investors invest with fixed financial goals in mind. Coming up with an investment strategy becomes easy and productive when you have precise plans.
Don’t put all your eggs in one basket: The importance of diversification cannot be emphasized enough by smart investors. It is easier to stick to the plan through market ups and downs if an investor has a proper investment mix, which gives them a portfolio with growth potential and a degree of risk acceptable for the position taken. Diversifying your assets into different asset classes does not guarantee profits or protect you from losses, but it seeks to create a rational risk-reward balance. One may diversify not simply between stocks, bonds, and cash, but also within each of those categories. Consider spreading your stock exposure by investing across geographies, industries, investment types, and market capitalization. Also, diversify your bond portfolio across credit ratings, maturities, and issuers.
Leveraging technology: Successful investors gather basic knowledge about the market and sectoral trends, the global environment, and the advisor’s market image. If you are not comfortable with market research or you don’t have enough time to do it, there are various applications to help you out. Technology can assist you in selecting the appropriate assets. One can set their investment objectives and track their performance in real-time. For example, apps like betterment, wealth front, and fidelity investments can help you manage your portfolio hassle-free with professional assistance.
Emergency Fund: Investors should understand the necessity of having an emergency fund in case of unforeseen circumstances such as medical concerns, pandemics, or job loss. Having such a fund can assist you in fulfilling the regular costs during a catastrophe. But how to start an emergency fund? List down your key monthly expenses and simply multiply them by six, or the number of months you want your rainy day fund to last. This amount will be your emergency fund goal. Invest the emergency cash in assets that can be quickly converted into cash, such as fixed deposits, savings accounts, and liquid mutual funds.
Good investing habits make all the difference for investors. Nothing is more vital than well-thought-out planning when it comes to investing. But all the meticulous preparation in the world won’t matter if you don’t have the correct habits to service and feed those goals. By following the habits mentioned above, investors can achieve their financial goals just like highly successful investors.