You can invest your money for a number of reasons – tax savings, wealth generation, a holiday, a new home – the possibilities are endless. However, if you are careless with your investment, achieving your financial goals will be difficult. This is why you need to put in place certain habits that will help you traverse the equities market safely.
Here are 5 good habits that can help you successfully navigate through the investment landscape.
Start Early: Time is your biggest ally when it comes to investing. The sooner you start, the more you can take advantage of the power of compounding. With compounding, the returns you earn will start generating profits.
Invest Regularly: Opting for a Systematic Investment Plan (SIP) would help you to inculcate the habit of investing. With an SIP, a set amount of money will be invested automatically every month. This will help you adjust your lifestyle around your investment commitment.
Establish a target asset allocation and rebalance regularly: By investing in different types of assets, you can balance the risks and wealth growth. The exact percentage of asset allocation will depend on your risk tolerance and investment horizon.
- Stocks are known for their high-risk, high-return mechanism. If as an investor you have a long term horizon and growth focussed objective, then you can set a higher target percentage of stocks in your portfolio.
- Bonds are less volatile in comparison to stocks. However, they give comparatively lower returns. Bonds are ideal for investors with low-risk tolerance and short to medium term horizon.
- Cash and cash equivalents, such as GICs and money market mutual funds, are known for their safety of the investment. This is a good investment for people who are nearing their financial target.
Diversify investment: Diversifying your portfolio is of utmost importance. Every asset will have an up or a down, by investing in a wide range of assets you can ensure that you experience smooth sailing through market volatility. Adequate diversification can cover most of your losses and increase your earnings.
Check your emotions:
In the investing world, decisions should not be controlled by your feelings. As we all know, there is market volatility and it can create fear or even greed, which cause people to forget the essential investment tactic of ‘buying low and selling high’. It is easy to miss out on opportunities when emotions control your investment decisions. It is vital to keep a level head and think through every decision you take.
Habits are a difficult practice to inculcate. However, once the habit is set, then you only stand to gain. Similarly is it important to instil an excellent investing habit to ensure that you make the most of your wealth. The earlier you start, the better you can utilise the market to grow your wealth.