We all have habits, few of us are even slaves to some habits. Some of these habits are perceived as good habits and some as bad. Like sleeping on time, waking up early, eating healthy are all considered good habits while staying up late at night, smoking, eating junk everyday are considered bad.
We may argue over what can be categorized as bad or good as some of us may say that all their creative thoughts come only late at night and that’s when they get most of the work done. That discussion is relative but one habit is universally good “The habit to invest”. Cultivating a habit to invest consistently and with discipline is good for all and intelligent investment is serious stuff which has a direct impact on - how you tackle with any emergency, your future and your life style.
Here are few habits that will help you create the investing discipline.
- Start early – There is no ‘better time’ to start investing. You should start as early as you can, even if you start
with a small amount. Never underestimate the power of compounding.
As example – If you put aside Rs. 5000 every month for 15 years and the interest rate you achieve is a modest 9%. Let’s for simplicity’s sake assume that interest is compounded annually on the whole amount, which means on the Rs.60,000 you invested in a year, you are getting 9% interest compounded annually. After 15 years the amount will become close to Rs. 20 lakhs, where principal is 9 Lakhs.
Now consider the same investment for 20 Years. After 20 years you will get close to Rs.34 Lakhs. A difference of Rs.14 Lakhs where you have invested Rs.3 lakhs extra.
- Setting investment goals – You will have some short-term goals, some long term goals and you need to plan your
investment accordingly for these goals. Also setting goals helps you think clearly in creating a better road map.
You can in fact categorize your goals into three categories -
- Short term goals – Ready cash for any emergency, down payment for, maybe a car, repaying education loan.
- Medium term goals – Savings for buying a house, marriage expenses, overseas holidays.
- Long term goals – Kid’s education, retirement.
- Creating a plan – Once you have established your goals, you need to put aside some amount to cater to those goals.
For short term goals you may look into Recurring deposits, fixed deposits, liquid funds.
For medium and long term goals try to put some money into Mutual funds, buy equities if you are confident enough (not buying it just because you got a tip as an SMS or email).
Also look into some risk-free long term investment like Public Provident Fund and Sukanya Samriddhi Yojana (if you have a daughter).
- Start spending less – Money saved is money earned. Period. If needed, retrospect objectively on where your income is mostly spent and if that expense can be reduced in any way (maybe better planning) then that should be addressed. In the long run, this will definitely have an impact on your financial situation.
- Automating the investment – Most of the banks provide automatic debit for deposits, for mutual funds there are SIPs. When you have facility to put your investment in auto-pilot then why not use it. In fact plan your auto-debit in such a way that in the starting of the month itself money is debited and you don’t see a swell account which may urge you into any unwanted indulgence.
- Diversify – Never keep all your eggs in one basket, there are so many vistas for investors – equities, mutual funds,
bonds, fixed deposits, real estate, gold, silver to name a few.
Even if your preferred investment is equity there itself there is scope for diversification in form of large caps, mid caps, small caps, sectors. Same way in mutual funds you can create a portfolio of few funds spread among large cap, mid cap, hybrid, multi-cap, debt funds.
Some money in gold and silver also makes sense but that shouldn’t be your primary form of investment.
- Stay invested for long – Ride the tide, there will be periods of despair and there will be periods of euphoria.
Experience it all, stay invested, don’t run away !!
Every time of despair is an opportunity to average your cost, hunt for stocks which pay good dividend (If you get a stock, with good dividend yield, at a lesser price during stock market crash you have a very good chance of increasing your dividend yield for that stock).
Very few lucky or very well informed people can time the market to perfection, for rest of us it’s the discipline and long term goal.
Also don’t forget the effect of long term compounding as stated in point 1.
- Be informed, be flexible – If I have influenced you to stay invested for long I’ll also stress on the point of being informed and be flexible. Be informed about what is going on around you that may give you a good idea about the emerging sectors and the first mover advantage. That will also give you an idea about what is not working. With that knowledge you are well equipped to revise your investment strategy. Being flexible is as important as staying in the game. Sometimes not cutting your losses at the right time may harm you in a big way. So big flexible, accept what is not working try to get rid of non-performing investment before they become a burden you can’t get rid of.
That's all for this topic Investment Habits to Help You Build Wealth. If you have any doubt or any suggestions to make please drop a comment. Thanks!
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