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With 2024 on the horizon, we’re using the milestone as an excuse to highlight some nifty investing habits – for the new year, and beyond!
So whether you’re just starting out in your investing journey, or you’re an established investor seeking a helpful reminder or two, this article is for you.
As always, scroll down for all of the details or click on a link to head straight to a specific section…
From starting early, to properly allocating your assets, here are 7 habits to put you on the path of building up a successful stock market portfolio…
As long as you’re over 18, and don’t have any debts – except for mortgage debt, then there’s really no excuse if you haven’t yet opened a brokerage account.
These days it’s possible to start investing with very small sums. So, even if you don’t have much cash to your name, or you’re very risk averse, neither are much of an excuse given that it’s now easier than ever to test the waters.
Once you’re in the investing game, then a great habit to start with is to set up automatic contributions into your investing account each month.
Automatic contributions are easy to set up from your main bank account – a direct debit will typically do the trick. Once set up auto payments require little effort, can help install discipline into your investing journey, and may allow you to build up a sizeable pot over time without ever having to contribute big lump sum up front.
For setting up automatic payments into an investing account, a pound-cost averaging approach is often the way to go. That way you don’t have to worry about short-term movements in stock prices. With pound-cost averaging you buy a set sum of stocks each month, regardless of recent swings. Some months your fixed sum will buy you more assets, in other months you’ll get less assets for your money. However, over time, everything should more or less even out!
When it comes to putting together a portfolio it’s really important to diversify your assets.
Think about it… by mixing up your assets, you’re essentially giving yourself a cushion should a single investment class suffer a large fall.
For example, say you choose not to diversity your investments, and you decide to put 100% of your portfolio in S&P 500 tech stocks. Should the ‘unthinkable’ happen and we see a tech crash over the next year or so, then your portfolio would likely take a huge hammering.
If you were wondering, a tech crash isn’t as farfetched as it sounds – just ask any investor who lost out in the 1990s dotcom bubble!
In contrast to the above, if you had, say 20% of your portfolio invested in tech, it’s possible that your other holdings would have given you some protection during a major tech crash. In fact, if you had a mixed holding of assets which have an inverse relationship to one another – stocks and bonds, for example – then it’s possible that your other assets may have actually increased in the middle of a tech slump.
Comparing fees among investment platforms is arguably one of the most useful habits for investors. That’s because high fees can easily eat into profits from your portfolio, even if you’re investments turn out to be hugely successful.
For example, some investment platforms may take a slice of your returns in the form of a percentage cut. Others may take a fixed sum every time you buy and sell shares, which can soon add up!
While investing fees can rarely be avoided entirely when investing, taking the time to research providers, and opting for a platform that best aligns with your investing style will almost certainly be good for your wallet.
For more information, see our comprehensive article that explains the difference between share dealing fees and platform fees.
While not for everyone, passive investing is another hot investing habit. With passive investing, you needn’t worry about trawling through company reports, or identifying trends in hundreds of competing markets or sectors. Instead you simply buy a low-cost index tracker fund, and let the market do the work for you.
For many, passive investing is a very lucrative investing strategy, and typically offers a better return than picking and choosing individual stocks. After all, many investors recognise that the average investor won’t beat ‘Mr Market’, so why try to swim against the tide?
Learn more about how to passively invest in our article that compares passive investing vs active investing.
While day trading is an easy way to give yourself an adrenaline rush, the old adage of ‘slow and steady wins the race’ really does apply when it comes to investing.
Put simply, you’ll give yourself a better chance of success if you invest with a long-term horizon in mind.
Not only do long-term investors accept that the market will experience ups and downs, and will therefore be less tempted to panic sell, patient investors are also more likely to ensure their portfolio aligns with their wider investing goals.
For example, all investors should ask themselves why they are investing before putting opening a brokerage account. That’s because without some sort of goal, it’s pretty much impossible to know when to sell your assets.
This is why maintaining a long-term view and taking it slow & steady are both great habits for any investor to take on board.
Meddling with your portfolio too often is a bad investing habit. That’s because keeping too close of an eye on your account might tempt you to make unnecessary changes to your portfolio while incurring fees. Meddling with your investments too often can also cloud your judgement, and lead to you loosing that all-important long-term view.
Yet while investors shouldn’t needlessly meddle with their portfolio, ‘checking’ on your portfolio regularly is still a worthwhile habit. Not only will checking your investments every few months give your financial goals a quick ‘reality check’, but checking the size of your portfolio will also help you determine whether you need to rebalance your assets.
For example, let’s say you have diversified portfolio of 60% stocks and 40% bonds. Unless your portfolio automatically rebalances your assets for you – as is the case with a lot of index tracker funds – it’s likely you’d need to buy and sell bonds and stocks yourself, in order to maintain the 60/40 split. This is because it’s likely that your original 60/40 allocation will have changed due to the differences in price movements over time.
For instance, if stocks have risen 10% over the past 6 months but the price of bonds have fallen by 10%, then it’s likely your portfolio would be out of sync with your original allocation. In this scenario, you‘d likely have to sell some stocks, and buy bonds in order to maintain your initial 60/40 split.
So, while meddling with your portfolio might be looked at in a negative light, checking it every now and then, and rebalancing your assets where appropriate, IS a good investing habit.
For more on this, see our article that explains what is asset allocation, and why is it important?
Investing is risky business. It’s a simple as that. Unlike saving your money, when you invest you are essentially putting you capital on the line.
Of course, some investment classes are more volatile than others. For example, a well-diversified portfolio consisting of a mixture of stocks, bonds, and some precious metals is going to be less risky than a portfolio full of cryptocurrencies, NFTs, and the like! However, the fact of the matter is that all investing carries risk.
To cut to the chase, being comfortable with risk is a really important if you’re looking to invest. Regardless of the assets you invest in, knowing that there will be times when your portfolio will fall into the red is all part and parcel of investing. This is why having realistic expectations, and putting together a portfolio that aligns with your personal tolerance for risk, are both vitally important.
Are you investing for the first time? If you’re investing for the first time then do take a look at our article that highlights three easy ways to invest. And while we’re at it… to keep on top of the latest developments in the wider investing sphere, why not sign up to the fortnightly MoneyMagpie Investing Newsletter? It’s free and you can unsubscribe at any time.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. Capital at risk.