Good investors realise their financial goals by practicing good habits and not getting distracted from their long term plan. If you’re at the beginning of your investing journey, try to learn these six habits of successful investment until they become second nature. We think they’ll never let you down in the long run.
The sooner you begin investing, the more time you’ll have to reach your financial goals. Whether it’s saving a deposit for a house, or growing your retirement nest egg, the more time your money has to work for you, the larger it can grow.
This means the best investors don’t delay. As soon as they have a goal in mind, they’ll begin investing in appropriate assets, reinvesting their gains to harness the power of compound interest. If you have a financial goal, you must begin investing as soon as possible to give yourself the best chance to reach it.
The best way to build your investments is to make regular payments. Good investors set up a direct debit to their investment platform so that a constant source of cash is being invested in the best value opportunities each month.
Just like saving into a savings account or cash ISA, you should pay into your investment fund as soon as you receive your salary. This means you won’t notice the money leaving your account and you can budget the rest of your monthly expenses accordingly. Meanwhile, your investment portfolio will grow and grow.
This habit of regular contributions harnesses another powerful investment force: pound cost averaging. It is a mistake for most ordinary people to try and ‘time the market’ when investing for long term goals. By spreading your payments across many months as opposed to paying in one lump sum, you lessen the risk of investing all your money at a bad time.
Don’t be scared of swings
For less experienced investors, it can be scary to check on your investments and see you have made a loss. But good investors won’t let their emotions impact their strategy.
If investing in company shares, or funds which contain a lot of shares, it is common to see large swings in the short term. You might log into your investment platform and see you are down 10% in just a few weeks.
You must remember that you have a long term strategy. It’s where you are at the end that matters, not the (sometimes bumpy) road that gets you there. If investing for long term goals, a good habit is not to check in on your investments too often. Checking too often can tempt you into rash decisions and cause unnecessary anxiety.
Good investors use diversification to protect against volatility and sudden shocks. Diversification means having a wide range of investments and so more, and different, sources of potential returns. This could be across different asset classes, like shares, currencies, commodities and property. It also means your investments are spread across different economic sectors.
Having diverse investments means that a sudden crash in the value of your tech company shares is likely to be mitigated by your holdings in gold or manufacturing companies, which will probably be unaffected by the price of a Facebook share.
You don’t have to be an expert to have a diversified portfolio. Investment experts, like Gather, put together portfolios that are diversified by nature in their range of investments, so instead of researching 50 plus different companies, all you have to do is buy into one investment opportunity.
Our Megatrends Playlist contains a wide range of opportunities, helping you mitigate against specific company losses, while being designed to help you profit from the trends shaping the global economy of the 21st century.
Make the most of your tax allowances
In the UK, investors must pay tax on their gains. One of the most popular ways to invest in the UK is through a Stocks & Shares ISA.
An ISA is an individual savings account. If your investments perform well and increase in value, you will not have to pay income tax or capital gains tax on the investments in your ISA. This makes it a great way to invest.
There is an annual maximum you can pay into an ISA each tax year, called your allowance. It is currently £20,000. Good investors try to maximise the amount of money they invest in their tax-free ISAs each year, because the allowance does not roll over to the next tax year. You have to use it or you lose it.
And if you’re investing for your children’s future – consider a Junior ISA which offers lots of opportunity for compounding interest as well as saving tax. Gather’s Junior ISA is coming soon.
Invest only in the best opportunities
No matter how rich you are, you will never have enough money to invest in everything. But that’s fine — not everything will give you a good return. Therefore, you must pick your investments wisely and invest with the best professionals with the best track record to increase your chance of making money. If you can outperform other investors, you can reach your goal sooner rather than later.
While always being diversified, top experts always have a minimum return in mind and discard anything that they don’t think will perform to that standard. We want you to be successful, not just average.
We call this habit investment opportunity cost, meaning if you invest in one thing you will not have money for other investment. There is always a trade off.
Get into good habits with Gather
We have designed our platform to make it easy for you to practice the habits of the good investor. Join us today from £30/month and build up your own diverse portfolio of investments designed to help you reach your financial goals.
The information provided by the blog are the opinions of the writer. As such, it should not be construed as investment advice.