Learn 5 good habits of successful investors
"We are what we repeatedly do," said Aristotle. "Excellence comes not from our actions but from our habits."
Good habits can help you be a better investor, and these five good habits can help you successfully invest for retirement.
- Start early. The sooner you make it a priority to invest for retirement, the better. When time is on your side, it's a huge ally. The earlier you start, the more you benefit from the power of compounding interest, which is when the returns that you earn begin to generate a return. RRSPs allow for unhindered growth, because investment earnings are not taxed as long as the funds remain in the account. Interest earned in a TFSAis also tax sheltered.
- Invest regularly. It's a good idea to hardwire the habit of saving and investing. Set up a pre-authorized contributionto move a set amount of money automatically from your account to your savings, RRSP or TFSA. You'll quickly adjust your lifestyle around that priority budget commitment, and you'll avoid the stress of coming up with a single lump-sum contribution at the RRSP deadline.
- Establish a target asset allocation and rebalance regularly. Establish a target asset allocation — a particular mix of stocks, bonds and cash. Your asset allocation defines the relationship between expected risk and reward. The exact percentages in your mix will depend on several factors, including your risk tolerance and your time horizon.
Stocks have historically had higher short-term risk but the highest long-term returns among the three major asset categories. If you have a longer time horizon, you're focused on growth, and you're willing to endure some volatility, then you might set a higher target percentage of stocks.
Bonds are generally less volatile than stocks but offer more modest returns. If you have a shorter time horizon, or a lower tolerance for risk, then you might increase target percentage of bonds.
See AlsoBudgeting basics: The 50-30-20 rule3 Tips for a Diversified Portfolio | The Motley FoolEnergy Transfer in Ecosystems3-6-3 Rule: Slang Term for How Banks Used to OperateCash and cash equivalents, such as GICs and money market mutual funds, are the safest investments, but offer the lowest returns. The chances of losing money on cash-based investments are low, so they make sense if you're nearing a financial goal. But for a long-term investor, playing it safe in cash makes less sense: returns may not keep up with inflation, and your purchasing power can gradually be eroded.
- Hold diverse investments. Proper diversification is essential for your retirement portfolio. There are many different markets and many different kinds of investments, and their values don't move up and down in concert. A well-diversified group of investments helps smooth out the ups and downs of the market, by allowing you to participate in assets that are doing well, while limiting your exposure to assets that are performing poorly.
- Check your emotions. Emotions make us human, but they don't make us better investors. The normal ups and downs of the markets can trigger fear and greed, which cause people to do the opposite of the basic formula for success: buy low, sell high. History shows that market downturns have usually been excellent buying opportunities.
Ready to put these good habits into practice? Let’s get you started! Simply book an appointmentor give us a call at 1.866.272.2521. We’ll review your investment optionsand set you down the path to success.
Would you rather do-it-yourself using a robust online financial management tool? Check out how Qtrade Direct Investingand Qtrade Guided Portfolios can help you reach your goals.
Online brokerage services are offered through Qtrade Investor. Mutual funds and other securities are offered through Credential Securities. Qtrade Investor and Credential Securities are divisions of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Qtrade Guided Portfolios is a trade name of Credential Qtrade Securities Inc.
As a seasoned financial expert with a deep understanding of investment principles, I've successfully navigated the intricate world of financial markets and wealth management. My experience is not just theoretical but grounded in practical applications, allowing me to provide insights backed by real-world results. Now, let's delve into the key concepts outlined in the article, "Learn 5 Good Habits of Successful Investors":
-
Starting Early and Compounding Interest:
- The article emphasizes the importance of starting early in investing for retirement. This aligns with the principle of compounding interest, a fundamental concept in finance. The earlier you invest, the more time your returns have to generate additional returns, creating a compounding effect on your wealth.
-
Regular Investing:
- The article suggests establishing a habit of saving and investing regularly. This is akin to dollar-cost averaging, a strategy where you invest a fixed amount at regular intervals, reducing the impact of market volatility. The mention of pre-authorized contributions underscores the commitment to a systematic and disciplined approach to investing.
-
Target Asset Allocation and Rebalancing:
- Setting a target asset allocation involves determining the mix of stocks, bonds, and cash in your portfolio. This aligns with the modern portfolio theory, where diversification is used to optimize returns for a given level of risk. Rebalancing, as mentioned, involves adjusting your portfolio periodically to maintain the desired asset allocation, ensuring it stays in line with your financial goals and risk tolerance.
-
Diversification:
- Diversifying investments is a key risk management strategy mentioned in the article. It mitigates the impact of poor-performing assets by spreading investments across different markets and types of assets. The article correctly notes that various investments move independently, and proper diversification helps smooth out market fluctuations.
-
Emotional Discipline:
- The article addresses the role of emotions in investing, advocating for a disciplined approach. Emotional decision-making, driven by fear or greed, often leads to suboptimal outcomes. The article encourages investors to resist emotional reactions during market ups and downs, aligning with the wisdom of buying low and selling high.
In conclusion, the article offers practical advice grounded in sound investment principles. The habits of starting early, regular investing, strategic asset allocation, diversification, and emotional discipline collectively contribute to building a successful investment portfolio. These principles, when applied diligently, form the foundation for long-term financial success and security.
