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Good Habits For Successful Investing

Many of us know that the future catches up with you far too quickly, and try to make the smartest possible decisions with our money. While a lot of people have started to invest these days, you may be feeling a little disappointed by the results. You may be neglecting some practices which are holding you back. Here are a few good investing habits you should get into.

First of all, being a conformist. I know that “conformist” is a dirty word for some people. However, investment and trading isn’t a popularity contest, it’s a way of making money. If you want to see results from the money you’re putting in, then it’s usually best to go with the flow. When you choose your stocks according to the performance of a financial market, it’s called indexing or “passive management”. “Active management”, on the other hand, means you try to beat the index. While the latter has potential for short-term wealth, it increases your personal risk by a lot. Look at any five-year period in the history of the stock market, and you’ll see that passively managed funds win over actively managed ones. Even current stock earnings updates show passive management in a positive light.

Another good habit to get into is sticking to low-cost funds. As I’m sure you know, different kinds of funds charge different kinds of fees. These are often known as the expense ratio of a fund. If I said a fund had an expense ratio of 2%, it would mean that 2% of the total assets would be used to pay off expenses. These expenses will typically be things like advertising and administration. On average, actively managed funds have an expense ratio 1% higher than passively managed funds. I know that might not sound like much. However, when you factor in the gains of actively managed funds, that one percent can make a pretty significant difference. Again, sticking to indexing is often the best way to go. This is especially true if you don’t have much time to learn the gritty details of investing.

Image: PMy final tip is to employ a buy and hold strategy when you first start out. Historically speaking, the average market return is about 8.5%. Despite this, the average investor only earns about 5% on every investment. There are a lot of reasons for this, but I think one of the most common causes is investors who make choices based on emotion. Far too many investors will chase returns which are slipping through their fingers, and pander to fearful impulses. Media hype doesn’t help either! If you want to make more from your investments, then start playing the long game. Whenever you’re seized emotion and cash in your chips too early, you could be cheating yourself out of a lot of money.

Adopt these habits for investing, and your overall returns will become much more favourable. There’s no miracle method for success in the stock market. However, a few good practices will give you a much better chance at a good ROI.