Ever since Stephen R. Covey published The 7 Habits of Highly Effective People in 1989, we've seen variations of "Seven Successful Habits" on about everything. Here is my version as applied to investing.
1. Start early and invest regularly. Successful investing takes time, and there is no magical catch-up strategy if you start late. So many people make big investing mistakes by waiting and then, in a panic, swinging for the fences in order to try and make up time. That strategy rarely works.
Some don’t start early because they believe they need to be making a lot of money to invest. They assume investing $10 or $20 a month won’t get them anywhere. Nothing could be farther from the truth. It just takes time to see the results add up. I started with $20 a month when I was in my early 20’s. It took me 10 years to accumulate $4,000. I was convinced I was going nowhere fast, but I stuck with it and was able to gradually increase my monthly amounts. Today that $4,000 has grown exponentially and will provide me a comfortable retirement.
2. Compulsively diversify. One of the cardinal sins of investing is "putting all your eggs in one basket." It's a recipe for disaster to stake your financial future on any one company, commodity, or investment strategy. It is ill-advised to place a large portion of your portfolio into gold, oil, real estate investment trusts, exciting stocks de jour (Microsoft, Apple, Amazon, Tesla), or any other asset class.
Savvy investors own lots of eggs in lots of baskets: thousands of US and international stocks, super small to super large companies, scores of real estate investment trusts with properties scattered globally. they invest in diverse worldwide corporate, government, inflation-adjusted, and high yield bonds. They also own gold, oil, lean hogs, and a dozen more commodities. Basically, a diversified investor, through mutual funds, owns a little bit of about every investment there is.
3. Embrace boredom. Successful investors don’t try to time the market by buying low and selling high. They have realistic return expectations. Most will provide themselves a good retirement income if they can average 1% to 3% above inflation over a long period of time. With inflation at 1% today, you want a return of 2% to 4%. They set an investment strategy and stay the course.
4. Take age-appropriate risks. Young investors with decades to recover from market volatility may start with 100% in stocks. They readjust their allocations as they age and their lives change, gradually diversifying into other asset classes. They understand that volatility is normal. They expect their portfolios to fluctuate, sometimes wildly as we saw this March. They rebalance their portfolios once a year.
5. Seldom look at balances and markets. Effective investors don’t pay attention to the financial news of the day. They do pay attention to their emotions, especially those generated by the financial news of the day. They never make adjustments to their portfolios when feeling anxious, fearful, or euphoric.
6. Focus on taxes and fees. Unlike the markets, taxes and fees are something savvy investors can control. They use retirement accounts, pay attention to taking gains and losses at strategic times, take advantage of the 0% capital gains bracket when they can. They know the overall expense ratio of their portfolio and what they pay for financial advice.
7. Ask for help in the right places. Successful investors know when they know enough to be dangerous. They know the difference between fiduciary advisors and sellers of financial products. They seek help from advisors who are educated, unbiased, and free of conflicts of interest.