7 Habits of Effective Investing

Published in

The Money Matter

5 min readAug 14, 2022

Core principles to keep in mind while deploying your money.

This morning I woke up to the news of our Indian tycoon, Mr. Rakesh Jhunjhunwala’s demise. It’s such a loss for the country and we pray for his soul.
There is so much we can learn from stories like Mr Jhunjhunwala and many such Indian megainvesters who have made it big from zero, I want to take a moment to review some basic principles that should eternally stay with us during our investment journeys.
Keeping this piece short and crisp. Let’s dive in!

1. You HAVE to invest

I still feel the need to emphasise on this, over and over. There are no two ways about it. You cannot have your money lying around in a bank and assume you are saving. You are losing to inflation and the added returns the market instruments have in store for you. Unlike you, your money can work forever and it’s just getting better with time. Leverage it!

2. Invest after you have cleared all your debt.

The golden rule. While there is the argument of good debt where you can take out a loan at a lower interest rate than selling off some asset or using the loan amount to lease something that gives you higher rates of return. This gameplay is on the large scale and not suggested for individuals who are just getting started with money. Clear off everything you owe and put a stopcork to that. Go to zero and then grow.

3. Be an educated investor.

Investing requires knowledge. I am not saying that you need to stick your eyes to the news channels and stock price movements 12 hours a day. You need to understand what you’re investing in and stay updated. This is general knowledge everyone should have. Understand your cash-flow. Know how and where the money is coming from and where it is going and why. How can you optimise it for better returns. Are you using your money judiciously and periodically check if there is room for you to save more, invest better. Thoroughly understand and judge where you keep your money.

4. Have a goal

As essential as working on a project or the execution is, it is even more important to have an end goal in mind. Just like project teams function better if they know the organization’s vision, you will be more motivated and disciplined with your investments if you have clear goals set. It could be saving up on a corpus to retire early, buying your family home, travelling around the world or financing your education abroad. The destination will always drive you.

5. Staying consistent is the key

There is no gain without some pain in play. Staying consistent with something is a habit and forming habits will lead to progress. Motivation never stays. Investing also comes with it nuances and staying in the game becomes difficult is you do not have a strong mind. It is more important to stay put and go bullish while the markets are down and the returns are bad than times when it’s green and rosy. It’s a mind game and the challenge is to gain control of your brain rather than your brain driving you into laze.
The idea is simple: Ride the rollercoaster, all the way.

6. Know your risk appetite

This is something novice investors miss out on. Knowing the flip side is very important. Having a contingency plan is important. High returns come from higher risk instruments. You should judge yourself and your goals with practicality. Understand what is at stake and how much can you afford to put at stake. That is to say, investing all of you salary in crypto would be foolish if you do not have a secure income source and your emergency fund ready. Rather, keep your money somewhere that will just beat inflation and guarantee returns & corpus safety.

7. Having an EXIT strategy

Knowing when to pull out your money and how, is a plan you have to make at some point. The sooner the better. Goal based investing already has given you a timeline which tells you at what point will you be needing the money. Just like we should invest consistently and continuously, we have to withdraw gradually too. It’s called a Systematic Withdrawal Plan. You do not want to liquidate all you money when the market is at a low and make major losses.