They say hard work beats talent when talent doesn’t work hard, and this couldn’t be truer when it comes to investing. There’s no secret recipe for picking winning stocks, and it’s rare to find an innately talented investor who can predict the market with any deal of accuracy. Investing is a long game, and our best chance to win is often just through consistency and prudence rather than luck and hope. That being said, it’s paramount to form some reliable and profitable habits early that can turn us into effective investors in the long run.
Here are a few key habits of successful investors:
- Make Saving Necessary
Saving money should be a top priority, especially until you have your emergency fund built up. In order to invest, we first need to have something to fall back on, and prioritizing your savings account early is the quickest way to achieve that.
As someone aspiring to join the millionaire club, I’ve learned to emulate the habits of successful people who’ve achieved what I aim to accomplish. Interestingly, a study found that 58% of millionaires prioritize saving money over investing it, and it’s easy to see why. By having a substantial emergency fund, you’re better equipped to handle life’s unpredictable moments without having to dip into your investments. This way, you can avoid the need to sell your investments prematurely, which could potentially hinder your returns in the long run.
The key is to start small and make saving a habit. Set aside a percentage of your income each month, and before you know it, you’ll have a financial cushion to protect you in case of any emergencies.
- Have a Plan
Successful investors almost always have a plan in place. Whether it be the asset allocation of your retirement account, a monthly investing budget, or just a stop loss, intentionality wins in investing. Systematically going about your investing by having a strategy in place will save you a lot of money and likely make you a lot more too. In fact, according to a study by Vanguard, having a financial plan in place can increase your retirement savings by up to 15%.
So, take some time to develop a plan for your investments, whether it’s establishing what exactly you want to invest in, or your investment time frame. Create a plan and stick to it!
- Diversification
You know what they say, “don’t put all your eggs in one basket.” It’s the same with your investments. Diversification is like your plate at a Matebeto. Would you rather have just one dish and risk being stuck with overcooked beans? Or would you prefer to have a variety of options on your plate, including some crowd-pleasers like chikanda and visashi? The same goes for your investment portfolio. Putting all your eggs in one basket is like putting all your money into one stock. Sure, it might be tempting if you think it’s the next big thing, but it also means you’re putting all your hopes and dreams into one relish…I mean, basket.
Diversifying your portfolio across different asset classes and industries helps to spread out your risk. This gives you a better chance for long-term success. So, just like a Matebeto, don’t be afraid to load up your plate with a little bit of everything.
- Buy and Hold
Let’s talk about the importance of focusing on time in the market versus timing the market. Trying to predict the market or perfectly time your investments is a fools’ errand. Successful investors understand this by prioritizing consistency and discipline when investing. The data also supports this approach.
A study by J.P. Morgan found that missing out on the top 10 performing days of the S&P 500 between 1996 and 2011 resulted in a nearly 50% reduction in returns. In fact, over that same period, a buy-and-hold investor saw an average annual return of 7.8%, while an active investor who missed those top 10 days saw their average annual return drop to just 4.1%.
So, stay the course, stay invested, and focus on the long-term gains rather than trying to time the market.
- Manage Your Expectations
If I were to ask you why you’re investing your money, what would your answer be? To get rich, right? If you’re investing your money to become a millionaire, you’re not alone. While the ultimate goal of investing is to make money, it’s important to manage your expectations and realize that success takes time.
To put things into perspective, I tried an online millionaire calculator to see how long it would take me to actually become a millionaire. The result? Well, it’ll take me a whopping 22 years to have 1 million dollars invested.. And that’s if nothing changes! The time horizon was calculated based on my personal savings rate and an average 20-year annual return for the S&P 500 (~10 %). So much for my aspirations of being a millionaire by 30, I’m 28 by the way.
But don’t despair just yet. The key is to remember that investing is a marathon, not a sprint. Managing your expectations, and realizing that it takes time and effort to achieve financial goals, is the first step toward becoming a successful investor.
Lastly, there’s no one-size-fits-all approach to investing but forming good habits can put you on the path to success. By prioritizing savings, managing your expectations, having a plan, diversifying, and focusing on time in the market you’ll be well on your way to becoming a successful investor. Remember, investing is a long game, and it’s the consistent and prudent investors who come out on top.
