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In the late 1990s, tech companies saw a huge rally in the stock market. This surge was fueled by the advent of the internet and the widespread belief that it would revolutionize business and daily life. Companies associated with the internet, which were called dot-coms, saw their stock prices soar as investors poured money into them. This led to unprecedented growth for almost any stock that was even remotely associated with the Internet. However, this meant that tech stock prices were often ‘overvalued’ with respect to traditional financial metrics such as earnings and revenue.
But this frenzy wouldn’t last forever. Right after the new millennium started, the bubble burst. Many companies saw their stock prices plummet to a fraction of their highs, which wiped off trillions of dollars from the stock market. Let’s look at an example:
Here’s Amazon’s chart from 1998 to 2001, during the peak of the dot-com bubble. The stock rallied by over 1,800% within a matter of 14 months, but quickly came crashing down to near zero! Naturally, most investors would have sold off at this point.
However, even if you had invested during the peak in 1999 and not sold it, you’d be seeing nearly 4,000% returns today. And if you had kept investing regularly over time, those returns would have only been even higher.
The truth is, the most successful investments aren’t defined by flashy one-time trades or timing the market perfectly (Unless you’re Michael Burry or Roaring Kitty). For most of us, wealth is built on solid habits that stand the test of time. It's about simple, steady habits that allow your wealth to grow, regardless of market fluctuations or economic changes.
Here are the six investing habits that helped me change my life. These habits have the power to bring you closer to financial independence, regardless of market conditions or economic shifts.
The Six Investing Habits That Will Change Your Life
When it comes to long-term wealth building, the habits you form play a crucial role in shaping your financial future. In fact, the right investing habits can make the difference between a comfortable life and struggling to make ends meet. So, here are the six timeless principles that I wish I had known sooner.
1. Start Investing When You’re Young
The first and most important habit is to start investing as soon as possible. It may sound simple, but it’s one of the most impactful pieces of advice you’ll ever get. The earlier you start, the more time your money has to grow, thanks to the magic of compound interest. Not only do you ride out any short-term fluctuations in the market, but you can also take advantage of compound interest.
Compound interest means that the money you invest not only grows but also earns returns on those returns. Over time, this creates a snowball effect where your investments begin to grow exponentially. The sooner you take advantage of this, the better off you’ll be.
For example, if you start investing $100 a month at the age of 20, with an average return of 8%, by the time you’re 65, you’ll have over half a million Dollars! But if you delay by just five years and start at 25, that number drops to $361,000 — costing you nearly $180,000 simply because you waited to start.
This also applies during times of market uncertainty. Even if the market is at an all-time high, studies show that over 70% of the time, it will be higher a year later. So, don’t let headlines or fear of timing keep you from investing regularly and starting early.
2. Avoid Trying to Time the Market
One of the biggest mistakes new investors make is trying to time the market, thinking they can predict the perfect time to buy or sell. The reality is that trying to time the market is nearly impossible, and it can lead to underperformance.
Data shows that missing just a handful of the best trading days can severely impact your overall returns. For example, if you missed the 10 best trading days between 1997 and 2017, your annual return would drop significantly, from 7% to just 3.2%. And if you miss the top 30 best days, your return drops to a negative 0.9%.
This is why the key is consistency — invest regularly, regardless of market conditions. Over time, the market generally trends upward, and staying the course is often the best strategy.
3. Only Invest in What You Understand
This might sound like common sense, but many people ignore it — only invest in what you understand. Don’t be tempted to invest in something just because it’s trending or because someone else told you it’s a good idea.
Before investing, you should at least have a basic understanding and at least explain:
- How does that instrument make money,
- How long do you need to hold it, and
- How much risk is involved.
If you can’t answer these basic questions, it’s better to take the time to learn more before putting your money into something you don’t fully understand. Warren Buffett is a prime example of this. He does not invest in assets if he doesn’t fully understand them or believe in their value generation.
4. Don’t Invest Money You Need in the Short Term
Investing should be seen as a long-term strategy. This means you should avoid investing money that you’ll need in the next one to three years. The market can be volatile in the short term, and there’s always a risk that your investments could lose value when you need the money.
For example, during the market downturn in March 2020, the S&P 500 dropped by over 30% in just a few weeks. If you had needed that money during the crash, you would have been forced to sell at a loss. However, if you had left your money invested, you would have seen those investments recover and double just a few years later.
For short-term needs like a down payment or other planned expenses, it’s better to keep your money in safer options like a savings account, money market fund, or Treasury bonds. Sure, you may not make as much. But you don’t lose anything here.
5. Invest Consistently
One of the best habits you can develop is to invest consistently. Whether it’s $50 a week or $100 a month, make it a habit to regularly contribute to your investments.
Consistency is key because it allows you to take advantage of dollar-cost averaging. This means that by investing regularly, you’re buying into the market at different prices, which helps smooth out the ups and downs over time.
For example, if you invest $100 a week at an 8% return, you could have over $2.3 million after 45 years. By automating your investments, you ensure that this process happens without needing constant attention. It’s simple, effective, and one of the easiest ways to build wealth.
6. Think Independently
The final habit is perhaps the hardest: learning to think independently when it comes to investing. It’s easy to be swayed by the opinions of others, but successful investors know how to trust their own research and instincts.
This doesn’t mean ignoring all advice or betting against the market. Instead, it means taking in different perspectives and doing your own due diligence before making decisions. To paraphrase Charlie Munger, independent thinking and having different ‘mental models’ allows you to make more informed and confident choices. It’s like the old saying — To the man with only a hammer, every problem looks like a nail.
Some of my best investments came from staying true to my strategy. While not every decision was perfect, those grounded in personal research and understanding often performed better.
The Takeaway
At the end of the day, building wealth isn’t about quick wins or timing the market perfectly — it’s about forming smart investing habits that can stand the test of time. By investing early and remaining consistent, you’ll set yourself up for long-term success.
These habits may seem simple, but they are powerful tools for growing your wealth over the years. Whether you’re just getting started or looking to improve your current strategy, following these six habits will help you stay on track and reach your financial goals.
That's it for this week. I hope you enjoyed this article. Let me know your thoughts by responding to this email - I read every single comment :)
Stay safe, stay invested and I will see you next week – Graham Stephan.
113 Cherry St #92768, Seattle, WA 98104-2205
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