At some point in your life you may have heard that it takes about 3 weeks of doing something routinely to create a habit. An interesting article about habits in the Huffington Post says it actually takes more like 66 days. But regardless of the length of time it takes, just what is a habit? According to the Merriam-Webster dictionary, a habit is defined as a behavior pattern acquired by frequent repetition or physiologic exposure. It is also an acquired mode of behavior that has become nearly or completely involuntary. That being said there are, of course, good habits and bad habits that each of us develop during our daily lives. Bad habits can be difficult to break, but good habits can also be hard to develop too. When it comes to investing, there are 3 ways to make investing a habit so you can build wealth for your future goals.
1. Invest Regularly
If frequent repetition is what creates a habit, it naturally follows that you must invest frequently in order to create a habit. According to CNBC it is a key financial habit that can make you rich. In fact, investing habitually has a greater chance of helping you accumulate wealth over time than trying to invest based on timing-buying stock when it’s low and selling when it’s high.
2. Invest in Ways That Allow Frequent Contributions
There are several different ways you can invest regularly in order to make investing a part of your routine. Some of them include:
- 401K – Invest in a retirement plan through your employer. Many employers offer 401K plans that will allow you to contribute a portion of your earnings before taxes. In addition, they often match up to a certain percentage of your contributions which helps your retirement plan grow faster.
- Dollar Cost Averaging – This allows you to invest a certain amount of money in stocks on a regular basis. When the price of the stocks drops your money automatically buys more shares. As prices rise your investment grows.
- DRIPs – You can buy small amounts of stock regularly without having to pay a bunch of money in commissions. The way this works is some companies will sell stocks directly without going through brokers. In other words, they skip the middle man and save you money.
- Robo-advisor – When you invest through a robo-advisor you can both save time and money. Several robo-advisors allow you to start investing with very low minimums. Additionally, some also allow you more say in how you invest as well as low trading fees. Rebalancing is usually done for you and many also allow frequent investment contributions.
3. Avoid Emotional Investing
Don’t rush to make changes to your portfolio every time your investments dip a little bit. Do check them every few weeks or so, but if you do so too frequently you risk making changes that could cost you in the long run. If you invest a little at a time on a regular basis over time you will accumulate more wealth than buying and selling at the wrong times.
Just as it takes time and frequency to develop habits in other areas of our lives it also takes those same things to develop habits in investing. Use the 3 ways to make investing a habit to help you reach your investment goals.
What other ways could help you to make investing a habit?