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7 Habits of a successful investor – WealthTrust Blog

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Know the why

The most important thing before starting a journey is to know the destination, similarly before starting an investment you must know the goal you are investing for. The first step to achieve financial success is to list down all your financial goals along with the time horizon of each goal. The number of goals may vary person to person based on various factors but you should have a separate asset allocation and investment strategy for each specific goal.

Know the where

After deciding on the goals, you need to decide where to invest to achieve these goals. This has to be done keeping in mind two factors, one your risk appetite (i.e. Risk taking capability) and other is the time horizon for the goal.

Basis these two factors you can decide on the asset allocation for each goal. For ex. for long term (more than 5 yrs) goals, Equity Mutual Funds are a good bet, and according to your risk appetite, you can go for Small cap, Balanced or Large cap funds.

Another example would be that for short term goals, say less than 1 year it is prudent to invest in liquid funds which are safe and provide returns better than the savings bank account.

Understand the basics of Investments

Before you invest you should be aware of some basics such as power of compounding, the risks associated with different asset classes etc.

Compounding is the simplest and the most powerful tool available for investors. Compounding involves earning interest on the interest earned. The two major components of compounding are Interest rate and Time period, and though an investor cannot control the movement of interest rate, the time period of investment is completely in his/her control. The table below explains the power of compounding.

Habits Blogtable
If you look at the above illustration, to meet an investment goal of ₹ 50 Lakhs one has to invest ₹ 67,694 for 5 years total investment to be made is around ₹40 Lakhs. On the other hand if proper time is given for compounding to take effect, only ₹8,488 monthly investment is required for 20 years and total investment also comes down to around only 20 lakhs.

To make full use of compounding early investment is a must.

Be Disciplined

Discipline is required in all walks of life, investing is no exception. Being regular investor has the advantage of rupee cost averaging, that is, buying less when price is high and buying more when it is low. So, for example, your target is to invest ₹2,40,000 a year, you spread it out in monthly installments of ₹2,000. This can be achieved easily through SIP investments in a mutual fund.

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