Not all who invest in the market are able to earn desired results or amass a huge corpus as they had anticipated. In fact, statistics reveal how only two per cent of the investors only are successful in the market while the remaining 98 per cent continue to struggle with understanding stock movements and factors affecting the market.
Irrespective of how the market has behaved in the past, some investors have managed to break through the monotony of stock-picking decisions and designing entry-exit strategies to earn returns that not only beat inflation but help them gain considerably.
These investors did not do anything extra as most of us would like to believe. In fact, they stuck to some very simple and effective habits that improved their financial standing. With time, these habits became principles that the whole world now learns and tries to follow. Some of them are
Save early in life
You must link your savings account with your investment account so that deposits are credited to your investments systematically with every pay cheque. You can do this by planning investments as soon as you get your first salary. You must choose where you want to invest your earnings depending on your risk appetite and how long you would like to stay invested, though investments over a long tenure grow due to the compounding effect.
You can start by parking your money in a large-cap equity fund or retirement savings plan to secure your future. Then gradually increase your investments as you earn incentives and appraisals on your salary. This is important as money loses its value with every passing year. Starting early is the key to great earnings as lump sums invested much later in life do not yield returns at the same rate. The magic of compounding is evident only when you start investing early in life.
The sudden effect of the pandemic left many people to dig into their earnings to pay for hospitalization and subsequent treatment. This underscored the importance of having an emergency fund in place. While you plan your retirement early in life, focus on building an emergency cash reserve too. This you can do by allocating a specified percentage of your income to your emergency corpus every month.
Also, if you have got back any refunds post payment of taxes, you may credit this amount too in the fund. Some of the best investors and personal finance advisors recommend building a stash that would have enough to pay off six months’ worth of expenses, especially, if you have one source of income. The size of the emergency fund must be broadened as you grow older as growing age is associated with additional expenses.
Pay attention to diversification
Focusing on how to diversify your assets is equally important as you decide on your asset allocation. While you may have already decided between equity and debt, how much you wish to diversify within those investment options is also an important decision.
For example, decisions regarding asset diversification when you are nearing your retirement are equally important as the extent to which your assets are diversified while you are still young and earning.
Also, your income source and frequency matter. Freelancers with not so much access to regular income as their salaried counterparts may assess their investment options and then diversify accordingly. Similarly, if you have more than one source of income, you must relook at your idea of diversification.
Keep your expenses under control
Spend only that which is left after you have saved and invested enough. Also, you must spend less than you earn, which means that you must attempt hard to not use your credit cards so rampantly. Stock market returns are not so great now, which is why you must take care of how much you are paying off in expenses. Be careful how much your broker or advisor charges you for your accounts and investments.
Parking money in an index and exchange-traded funds is a great way to save money as these cost less. Also, you may opt for passively managed retirement savings plans to ensure a lesser payout in terms of expense ratios. Actively managed funds always charge more, which is why you must tweak your investing style to save your money.