Building good investment habits
Investing is an essential part of every individual’s existence. Whatever we earn, we spend some part of it, save some part of it and invest some part of it to make money from money. However, more critical while investing is building and maintaining good investment habits. These habits contribute to your investment game and ensure that neither do you skip investing nor do you ever stop the investments – because only when you invest, you create wealth. Our article will discuss some of the greatest habits that each investor, beginner, moderate or expert should incorporate in their daily lives.
How to build good investment habits?
Investors make certain mistakes while investing, and almost all those mistakes are driven by human tendency. This makes it even more challenging for a person to catch these mistakes and make them better. The common mistakes everybody does at least once while investing are –
- Manifest unrealistic hopes during a losing trade
- Develop a herd mentality and make investments followed by popular belief/opinion
- Look for evidence that backs your theory instead of looking for facts that back statistics
- Bringing in emotions while investing
- Falling prey to anchoring during investing in falling markets
- Try to benefit from losing trades by investing even more to average out the cost
What do you do to counter these mistakes?
- Have a trading journal handy where you note all ideas, investment costs, returns and more
- Make an investment plan with how much you are willing to invest and your least return expectations
- Understand your risk appetite
- Note down the reasons why you want to invest in something before actually buying it
- Have a fixed amount for the investments
- Check on your investments with a substantial gap of at least three months in between
- Rebalance your portfolio as per your initial portfolio split, if need be
Building six essential good investment habits to become a successful investor
1- Always do your own research
There is no greater research than primary research. Rather than relying on what the market experts have to say and following them blindly, it is always advisable to research first hand before investing. Read about the asset you are investing in, the past performance, historical price movement and future predictions. Only when the asset truly aligns with your investment goals, move forward with betting your hard-earned money on it. Do not be a sheep, be the wolf who knows how to lead the pack!
2- Stick to your financial plan and goals
Your financial goals can change in the long term, but in the short to medium term, always ensure that you stick to your current financial plans and goals. Be accurate about what you want and stick to it by being consistent in your investment. Do not get lured in by heavy returns in short to mid-term, and do not get disappointed if the assets do not instantly perform well. Give the assets the time they need to widen, and as months will pass, you will see the returns. Invest as per your goals instead of having your goals as per your investments.
3- Always diversify
Diversification is the key to success in the investing world. Distributing your money across different asset classes protects you against any sudden dip in a particular market. If you invest all your money, for example, in the stock market, your investments will always be at high risk because if the stock market crashes, all your money is gone. On the other hand, if you distribute your money amongst stocks, FDs, gold, forex, mutual funds, real estate, debt instruments, cryptocurrencies and other such assets, you will never be entirely dependent on a single asset.
4- Have an emergency fund ready
Emergencies can knock at your day at any day, any point in time. This is why it is essential for you always to have an emergency fund ready with an expectation that it can be put to use anytime. The emergency fund must be equal to 3 to 6 months of your income and should ensure that your daily routine necessitates are well taken care of.
5- Follow consistency while investing
Many people start investing with complete determination but stop way before their financial goals are achieved. The inconsistency hinders them from creating the wealth they are capable of. Systematic investment plans can be used to maintain consistency, and a fixed amount can be put into an asset every month without fail. This will make you a disciplined investor and enable you to create wealth to your maximum potential.
6- Be patient and invest for the long term
Long term goals like creating wealth for a child’s education, post-retirement, or buying a house are more valid investment plans rather than short term goals. Money takes time to multiply, and only when you invest with a long-term perspective and be patient with it will you see growth in your money.
Conclusion
Being an investor is the easy part; being a successful investor is tough. When you follow the six habits discussed above, you become a disciplined investor with the right mindset. Such an investor is able to see actual wealth creation from their hard-earned money, and building these habits from scratch is only possible if you start applying them today and every day!
Want to learn more about building good investment habits? Request an introduction from us and we can put you in touch with an investment specialist.
