A clear and disciplined mindset is a contributing factor to a successful investment journey. Tshimologo Maputla shares seven essential habits for investing, using Stephen Covey’s popular framework as a reference.
Your investor behaviour is a key determinant of your investment success. Building good habits can enable you to navigate the complexities of investment decision-making. In his self-help bestseller, The 7 Habits of Highly Effective People, author Stephen R. Covey lists ways to become more impactful in life. He highlights how a “paradigm shift”, or a fundamental mindset change, helps to align thought patterns with desired behaviours. Inspired by Covey’s original list, below are seven habits to consider adopting to shift your investment paradigm.
1. Be proactive – put plan to paper
As the adage goes, “If you fail to plan, you are planning to fail”. A sound plan enables you to take responsibility for your finances and set clear intentions for your investments, outlining actions you can track. Start by drawing up a detailed budget as it will help you account for all your income, expenses and discretionary spending, and allow you to get an idea of how to make space for investing. The next step is to map out your short-, medium- and long-term investment goals. You can use the specific, measurable, achievable, relevant and time bound (SMART) framework for guidance on how to think about your goals as you build your plan. Whether you create your own financial plan or cocreate one with a financial adviser, this kind of proactivity helps you to chart a path for achieving your financial goals.
2. Begin with the end in mind – consider your long-term goals
Covey writes: “To Begin with the End in Mind means to start with a clear understanding of your destination”. Set your investment goals in line with attaining what you envision for yourself over different time periods. Whether this involves saving for a deposit for a home, funding education or investing for retirement, big picture goals can help you to stay focused and motivated and will guide your decisions as you begin to construct your investment portfolio.
3. Put first things first – get your priorities right
Prioritise setting up an emergency fund – this is a critical first step in any investment portfolio as it will prevent you from prematurely withdrawing from your long-term investments in case of emergency. Having an adequate safety net to take care of urgent and unforeseen expenses is important, irrespective of your age and life stage. Aim to accumulate an emergency fund valued at three to six times your monthly salary, invested in a low-risk unit trust, such as a money market or interest fund. Once you have built up your emergency fund, you can redirect your contributions to a longer-term investment, such as your retirement fund.
4. Think win-win – consider multiple outcomes
It is preparation, not prediction, that determines if you “win” at investing. Social, political and economic changes are notoriously difficult to predict, and it is important to be prepared for multiple outcomes. Investing in various asset classes – such as stocks, bonds, real estate and commodities – creates a well-diversified portfolio that gives you the opportunity to earn returns from different sources, while minimising risks. If you are unsure about how to approach this, you can outsource your asset allocation decisions to a professional by investing in a balanced fund.
5. Seek first to understand – listen before you act
In the age of pocket-sized technology, it is easy to get overwhelmed by the sheer volume of information we are exposed to. When it comes to investing, it is crucial to engage this information with discernment. Take time to read or listen and ask clarity-seeking questions before acting. This habit will play a role in protecting you from common behavioural pitfalls, including acting on impulse or fear.
6. Synergise – collaboration is key
There is no need to walk the road alone. You have the option to either put together your own investment portfolios or to outsource these decisions to an asset manager whose philosophy resonates with you, and whose product offering meets your needs and objectives. If you are overwhelmed by making these decisions on your own, consult a reputable independent financial adviser who can help you make the right decisions and take actions that work for you.
7. Sharpen the saw – keep your investments aligned to your goals
Covey articulates this habit in relation to self-improvement. When it comes to investments, sharpening the saw could mean reviewing your portfolio from time to time to improve it. It is not about making changes every time world events move the markets in either direction – such reactive decision-making can lead to locking in losses. Rather, sharpening the saw in this context is about reviewing your investments to keep them aligned to your financial needs and goals as you advance through major life stages.
Your role in your investment success
The common thread with each of these habits is that they depend on your investor behaviour. Unpredictability is an intrinsic part of the investment journey and there will always be market factors outside your control. However, what you can control is your investment paradigm and the decisions you take as a result. If you are unsure about how to make suitable investment decisions on your own, consider partnering with financial service providers whose expertise can turn your investment goals into success.