2022 is a whole new year and there’s a whole lot of investing to do. Whether you started your journey in the past or are looking forward to starting your journey in 2022 one thing you want to be is a successful investor. Life and success in life is a culmination of our habits and practices. So too in investing, the successful investor has habits that we can learn from and try to emulate in our investment journeys. Below are what we believe to be the top 7 habits of highly effective and successful investors. We have rationalised them to fit the context of Zimbabwe.
Habit #1: Education
The first habit of a successful investor is to seek education. Education as a continuous process is perhaps the most important part of the investing journey. Whether you are investing in stock markets, financial products, livestock or commodities you will need to develop a habit of continuous education. Fortunately, we’ve never lived in a better time for education with books, articles, videos, podcasts and so much more content that is all about investing. The best part is some of it is Zimbabwean and tuned right into our context. You can do it at your pace, just commit to learning something new daily, weekly, fortnightly or monthly. Whatever works best for you.
Habit #2: Automate
If you started investing recently you will appreciate that the hardest part of the process is just doing it. You will make the greatest plans but many struggle with taking the action to match the plans. If you relate to this don’t worry, there’s nothing wrong with you. That’s just how it is. You need to automate the process of investing as much as possible. So when you commit to direct a percentage of your income towards investment set up an automatic debit from your account. If your income is irregular then make sure you’re investing before spending rather than the other way around.
Habit #3: Prepare for the shocks
Investing is not saving and drawing the line between these two depends on point of view. The big distinction I draw between the two is that investment involves having your money at risk, meaning you can lose money. Loss in investment is not absolute, it’s a matter of degree and extent. The paper asset investing journey for money people starts with a win and then at some point some losses occur. Maybe not enough to wipe out your investment or dent it but certainly enough to rock your confidence if you are not prepared for it. As much as we spend time seeking education we should also consider our emotional preparation to be investors. It’s the difference between panicking and weathering a downturn in fortunes.
Habit #4: Manage Money Well
Investing looks great, doesn’t it? You put in some money, it grows and boom you’re a big fish. The reality isn’t quite that simple or glamourous. Unless you are investing huge sums it may take some time for things to make sense. Everybody is excited about their first dividend income until they see how small it is. Successful investing isn’t a standalone activity, it’s a part of good financial management. To be an effective investor you will also need to become acquainted with its less attractive sisters including saving, budgeting and insurance. Investing without savings and insurance is a sure-fire way to cash out your investment at the first sign of financial trouble.
Rule #5: Watch fees
Fees are a part of life and investing. There are fees we cannot get out paying, such as static taxes and levies. Then there are those we can navigate through behaviour, an example is a change to Capital Gains Withholding Tax on disposal of shares. As of 1 January, 2022 disposal of shares will attract withholding tax on proceeds of 2% which will be reduced to 1.5% if the shares have been held for longer than 6 months. Then there are fees which we can opt-out of. Management fees, some transaction fees and banking fees are some of them. These fees are small on their own but cumulatively they can add up to a lot. More so that amount in the hands of an effective investor like yourself could’ve grown to so much more.
Rule #6: Sometimes, the best thing to do is nothing
Some invest for the short term, others for the medium term and others still for the long term. There is nothing wrong with either of these outlooks what’s important is knowing which one you identify with. When invested in something volatile like the stock market there is always information coming your way. Some of that information is the decline in the value of investments. The hard part is knowing what to do in the situation and you will get all sorts of opinions on what to do. Sometimes, the best thing to do is nothing. Knowing when to do nothing will be informed by the combination of your education, preparation and goals in the investment.
Rule #7: Practice, and Practice Some More.
Investing is an activity. It doesn’t matter what the activity is whether golf, baking, martial arts or investing; the more you do of it, the better you get at it. If you combine the activity with the other habits mentioned here you will get better at it. In this light, you are better off investing 12% of your monthly income than investing one month’s paycheque every year. The numbers may be the same but the experience is not. Do more, learn more and do not be afraid to try things.
Are you ready to be an effective investor in 2022? Pick one of these habits to start with. Learn it and move on to the next one until you have all of them under your belt.
