Good habits can help you invest for your retirement
"We are what we repeatedly do," said Aristotle. "Excellence comes not from our actions but from our habits."
Good habits can help you be a better investor, and these five good habits can help you successfully invest for retirement.
- Start early. The sooner you prioritize retirement investing, 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 (when your returns begin to generate a return). RRSPs allow for unhindered growth, because your earnings aren’t taxed while they remain in the account.
- Understand your risk tolerance and time horizon. These two factors can help form the basis of your investment strategy. Knowing how comfortable you are with market fluctuations and how much time you have to save will help you determine if your portfolio should be focused on income, growth or somewhere in between.
- Hold diverse investments. Proper diversification is essential for any investment portfolio. There are many different markets 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.
- Invest regularly. It's a good idea to hardwire the habit of saving and investing. Make it easy by setting up automatic transfers every month from your banking account to your RRSP account. You'll quickly adjust your lifestyle around the budget commitment, and you'll avoid the stress of coming up with a lump-sum contribution at the RRSP deadline.
- 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 forget their investment plans. As long as your investment strategy is working for you and you haven’t had major changes in your timeline or risk tolerance, it’s usually best to stay the course.
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