Learn 5 good habits of successful investors
Good habits can help you be a better investor, and these five good habits can help you successfully invest for retirement.
1. Start early. The sooner you make it a priority to invest for retirement, the better. When time is on your side, it's a huge ally. The earlier you start, the more you benefit from the power of compounding, which is when the returns that you earn begin to generate a return. Registered retirement savings plans (RRSPs) allow for unhindered growth, because investment earnings are not taxed as long as the funds remain in the account.
2. Invest regularly. It's a good idea to hardwire the habit of saving and investing. Set up a regular contribution plan to move a set amount of money automatically every month from your banking account to your RRSP account. You'll quickly adjust your lifestyle around that priority budget commitment, and you'll avoid the stress of coming up with a single lump-sum contribution at the RRSP deadline.
3. Establish a target asset allocation and rebalance regularly. Establish a target asset allocation — a particular mix of stocks, bonds and cash. Your asset allocation defines the relationship between expected risk and reward. The exact percentages in your mix will depend on several factors, including your risk tolerance and your time horizon.
Stocks have historically had higher short-term risk but the highest long-term returns among the three major asset categories. If you have a longer time horizon, you're focused on growth, and you're willing to endure some volatility, then you might set a higher target percentage of stocks.
Bonds are generally less volatile than stocks but offer more modest returns. If you have a shorter time horizon, or a lower tolerance for risk, then you might increase target percentage of bonds.
Cash and cash equivalents, such as guaranteed investment certificates (GICs) and money market mutual funds, are the safest investments, but offer the lowest returns. The chances of losing money on cash-based investments are low, so they make sense if you're nearing a financial goal. But for a long-term investor, playing it safe in cash makes less sense: returns may not keep up with inflation, and your purchasing power can gradually be eroded.
4. Hold diverse investments. Proper diversification is essential for your retirement portfolio. There are many different markets and many different kinds of investments, and their values don't move up and down in concert. A well-diversified group of investments helps smooth out the ups and downs of the market, by allowing you to participate in assets that are doing well, while limiting your exposure to assets that are performing poorly.
5. Check your emotions. Emotions make us human, but they don't make us better investors. The normal ups and downs of the markets can trigger fear and greed, which cause people to do the opposite of the basic formula for success: buy low, sell high. History shows that market downturns have usually been excellent buying opportunities.
Ready to put these good habits into practice?
We are what we repeatedly do," said Aristotle. "Excellence comes not from our actions but from our habits.
At Innovation Wealth, we can help. If you decide to invest on your own, you can make use of various planning tools and calculators to help make investing by yourself a little easier. Alternatively, Qtrade Direct Investing® gives you everything you need to manage your self-directed RRSP or other investment account. Or, if you’d like some help with investment planning, you can speak to our Aviso Wealth Wealth Management Specialists or our Aviso Wealth Financial Planning Specialists. Invest wisely!
Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds, other securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated. Online brokerage services are offered through Qtrade Direct Investing, a division of Aviso Financial Inc. Qtrade and Qtrade Direct Investing are trade names or trademarks of Aviso Wealth Inc. and/or its affiliates. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.
