10 Habits Of An Intelligent Investor

Investing is an art. An art that requires meticulous research, sharp financial skills, enormous patience, and a little bit of common sense. While these investing skills might seem hard to achieve, it is not impossible. Everybody dreams of achieving financial freedom – of possessing adequate savings, investments, and liquid cash to live life on their own terms. Unfortunately, only a few achieve it.

Most people spend a large chunk of their lives shouldering the burden of increasing debt, diminishing emergency funds, reckless spending habits, and several other reasons that keep them from achieving their financial goals. In addition, a natural calamity, pandemic or an unforeseen emergency can derail one’s financial plans. Under these circumstances, acquiring financial education and skills has become the need of the hour. 

Let’s look at the ten habits that differentiate a successful investor from the others. These 10 habits will not only help you achieve your financial goals but also help you become financially independent. 

1. Financial Lifestyle Plan 

Every successful investor leads a goal-oriented financial lifestyle. He or she is particular about their financial trajectory – be it the size of their bank account, setting up investment pools, and ages they set for themselves for each investment achievement. They write down their specific financial goals, also known as financial goal sheets, and hone their skills to achieve them within the stipulated timelines. These goals are mainly of two types:

• Short-term: Goals to be achieved in the near future. For instance, making a specific investment, buying tax-specific investments like equity-linked savings schemes (ELSS) and tax payments. 
• Long-term: Major financial decisions that impact later events in life. For example,- planning one’s first real-estate purchase, children’s higher education planning, retirement planning, etc.

Along with establishing financial milestones by his or her age level, a successful investor also meticulously maintains a budget and sticks to it. 

2. Power Of Compounding

Compounding is the process of calculating interest over the principal amount, as well as accumulated interest over some time. Simply put, it helps a person earn interest over the previous interest income and original principal. 

Compounding Interest = [Principal*(1+Interest rate)^time] - Principal

To give an example,

Mr Abc invested INR 1000/- at 10% interest. For the first year, interest would be INR 100/-, but in the second year, interest would be INR 110 [(1000+100)*10%]. Interest would compound so on for the further years.

Even such small compounding helps investors potentially earn a large sum in the long-term. Famous author Morgan Housel correctly mentioned in his book ‘The Psychology of Money’ that compounded good returns in the long term are more beneficial than quick gains in the short term. An intelligent investor invests with discipline and has the patience to wait for his/her money to grow in the long run.

3. Emotional Discipline 

Market investments are subject to market fluctuations. Investors should keep in mind the probability that there will be testing times in their investment journey. Usually, the weak-hearted lose their money in short market regulations. However, the one waiting patiently, without panicking, stays in the game for a long time. 

Imagine if Warren Buffet had cashed all his investment in the 2008 financial crisis, would he have become what he is today? The long-term investment approach paves the path for success.

Moreover, managing your expenses without making any impulsive spending decisions is a key quality of an intelligent investor. Budgeting helps establish a foundation for such emotional discipline. It helps you effectively track your savings, bill payments and investments. It also acts as a disciplinary routine that keeps you focused on your financial goals and wards off any temptation to drift away. Also, investment management should be done by following thorough due diligence.

4. Priority To Fitness 

A successful investor knows that a healthy body is the temple of a healthy mind. Similarly, for the proper maintenance of your investment pools, your body also requires healthy maintenance. A successful investor always follows a strict, regular fitness routine and a nutritious diet to keep both their physical and mental health on track.  

Investment in good health can save you from frequent visits to the physician. Regular exercise and healthy diets can prevent or eliminate various health issues that come along with lifestyle changes. Ailments like obesity and diabetes can increase the premium payments on your health insurance. Poor health can also force you to retire early with a lower monthly income.

5. Frugal Lifestyle 

Frugality does not mean miserly or a poor standard of living. Every successful investor possesses a frugal mindset - they think before they spend. They also take greater caution to live below their means. An intelligent investor knows that spending more than they earn can lead to debts, while living below their means can help them build up their savings and leave them with more money to invest. Most successful investors you see today mastered a frugal lifestyle by developing a habit of living below their means before they rose to affluence.

Budgeting helps develop a minimalist lifestyle. Disciplined budgeting can help every investor make certain financial adjustments that can help them distinguish between the things they need and the things they simply ‘want’ to satisfy their temptation to spend money. 

6. Strive For Mastery 

Investing is an art that requires constant practice. Without investing, you can never grow your money. Every successful investor knows this truth and works hard to hone their investing skills everyday. Though the magic of compounding will help every knowledgeable investor grow their savings exponentially over time, they would spend endless time on research and wait with patience to let their investments achieve meaningful growth. 

Never embark on your investment journey thinking that you can be a legendary stock picker like Warren Buffer or Charlie Munger in a matter of months or years. They have had their own share of drawdown periods. They had also spent endless hours studying their investments. Tons of patience and perseverance have gone into the investment success they are enjoying now.

7. A Deep Love For Information And Knowledge 

In today's Information Age, only an investor with genuine information and deeper knowledge thrives in the investing game. Amid the endless flow of information and data, sticking to a single investment strategy or an obsolete investment plan can bring ruin to any investment portfolio. A successful investor is aware of this, and he or she relentlessly updates their knowledge regarding the newer investment avenues, amendments in tax laws or changes in interest rates. 

A successful investor never fails to keep up with the latest financial news and the developments in investment arenas like the stock market. Continuous learning is the key to being successful in one’s investment journey. He or she never hesitates to adjust their portfolio accordingly. In reality, lesser knowledgeable investors turn into cash cows for highly knowledgeable and sophisticated investors in every investment sphere existing on our planet. A well-updated information and knowledge base can guard every investor against falling prey to other highly sophisticated investors equipped with better-updated information and knowledge.

8. Your Investment Universe 

An investment universe refers to the investment instruments that can comprise any portfolio. It is defined as per one’s risk appetite, investment goals and other parameters like age and may change over time in the investment journey. Moreover, this should include only the areas in which one has sufficient knowledge. Investing without proper information or analysis would be a great risk for an investor.

Usually, intelligent investors invest in a business that they understand thoroughly. This helps in staying vigilant for any fluctuations in the market and finding suitable potential entry and exit positions.

9. Diversify Your Investments

One of the main principles from the Nobel-winning  ‘Modern Portfolio Theory’ by Harry Markowitz clearly explains the importance of diversification. When an investment is diversified using different instruments or sectors, the returns and risk are also spread well. 

If an investor diversifies his/her investments using equity shares, fixed-income bonds, real-estate investment trusts (REITs) and more, then in situations like an equity market crash, other instruments can potentially provide a cushion to absorb this risk in equities. Such scenarios can be applied to various instruments.

Thus, regular investment with diversification can help earn potential returns, along with proper risk management.

10. Always Go For A Professional Financial Guidance 

An intelligent investor never shies away from taking professional financial guidance from a financial advisory firm or a financial advisor. They also take up courses on investments to hone their investing skills and never hesitate to clear their doubts from reliable sources. 

You can also open an online brokerage account or sign up with a financial advisory firm that opens doors to new-age investment avenues like Lease Investing. All these platforms ease your learning process, help you to create a manageable portfolio and automate weekly or monthly contributions towards your investment pools.

Investment in debt instruments is not as complex as perceived. Sign up today with Grip Invest and find suitable opportunities for your investments.

Want to stay at the top of your finances? 

Join the community of 4 lakh+ investors and learn more about Grip Invest, the latest financial knick-knacks, and shenanigans in the world of investing.

Happy Investing!

Disclaimer - Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading.
This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip does not guarantee or assure any return on investments and accepts no liability for consequences of any actions taken based on the information provided. For more details, please visit www.gripinvest.in

Registered Address - 106, II F, New Asiatic Building, H Block, Connaught Place, New Delhi 110001