Four Habits That Helped Me Create a Portfolio Of More Than $100k In Two Years
Lessons from a newly-made rich investor
I never thought that I would be writing an article on the habits that helped me create an investment portfolio of 100k in just 2 years. I was someone who wanted to be rich by investing in some magic coin overnight. Guess what? I didn’t find that magic coin, but I did find the habits that helped me reach my first milestone over time.
In this article, I want to share those habits with you and I hope they will help you in reaching your goals.
Before I start, here is some background. I am married with a son. I am living in Germany and my family’s net income is approximately 8000Eur. Our average monthly expenses are 5000Eur. Therefore on average, we are left with 3000Eur to invest or save.
I wanted to share briefly my financial background so that you can relate better and most importantly it’s to motivate you that if I can do it, you can too.
With that said, let’s start.
Habit 1: Write a S.M.A.R.T Goal and Share it With Everyone
First things first. You need to have a goal to know where you want to be. Without a goal, you will just wander and procrastinate.
This is why you should write a S.M.A.R.T goal.
Our human brain works in certain ways. For example, writing on paper helps our brain to remember information better. I always write important goals and plan on paper as it helps me to visualize them better, I can reflect back on my goal and increase my commitment towards that goal. Here is an article that explains the benefits of writing your goal on paper.
S.M.A.R.T. Goal
Next, you want to have a Specific, Measurable, Achievable, Realistic and Time-bound goal. I cannot stress enough how important it is to have a S.M.A.R.T. goal. Not having a S.M.A.R.T. goal is equivalent to not having a goal.
Let us examine 2 goals to understand the importance of S.M.A.R.T. goals better.
Goal 1: I want to be rich.
Goal 2: I want to have a $1 Million investment portfolio by 30 Dec. 2030.
As per goal 1, I want to be rich. But, what do I mean by rich? Does it mean I want to be a millionaire or a billionaire or something else? By when I want to be rich? In 1 year, 5 years or 20 years? This goal will do more harm than help.
On the other hand, goal 2 is specific with a hard figure of $1 Million. It has a deadline. It is measurable so that I will know once I have achieved it and finally based on my current situation, I believe it is an achievable and realistic goal.
Share it with everyone
Once you have a S.M.A.R.T. goal, you should share it with everyone. There are several articles on whether one should share their goals or not. I won’t go into the debate of whether sharing your goal helps or not. I will simply explain how sharing goals helped me.
First of all, to be able to share my goal, I have to create one. Moreover, I have to be very thorough about it, as I don’t want to look like a fool in front of others. On top of it, sharing my goal with others, put some pressure on me to achieve it. Not only that, whenever I get distracted from my goal, I always had someone reminding me and motivating me to reach it. Believe me, it helped me a lot to reach my first milestone.
So, the first habit I changed is to always write a S.M.A.R.T. goal and share it with everyone.
Habit 2: Create a System That Compliments Your Goal
Once you have a goal, create a system keeping your personality in mind. Please note by creating a system, I don’t mean creating a plan. The system is something that protects you from YOU, so that you don’t make the most common investing mistakes.
Difference between a System and a Plan
It is very important to understand the difference between a system and a plan before we move forward. There is a thin line between the two. For me, “Plan” is a proposal for doing or achieving something. On the other hand, “System” is a supporting framework that will help me to execute my plan successfully.
For example, the goal is to buy a $250k apartment by end of 2022. To reach this goal my plan will be to learn the process of buying a property and how to get a mortgage in 3 months. Save $30k to cover the down payment by mid of 2022.
Now, to be able to successfully execute this plan, I will create a system keeping my weaknesses in mind. For example, one of my weaknesses is I am not good at saving money. Therefore, I will create a system keeping this weakness in mind and will automate the transfer of a fixed amount to my savings account every month, once I get my salary. This will make sure that I have saved the amount described in my plan.
I hope you now know the difference between a “System” and a “Plan”. Let’s check the System I created to achieve my goal to create a $100k investment portfolio in 2 years.
My System
The system I created is to invest a fixed amount every month. The amount I will invest will not be less than $1000 and will never be more than $5000. I will buy stocks with that money every month and will hold them for at least 5 years.
This simple system made sure that I invested consistently during good and bad times. It made sure that I won’t F.O.M.O. (Fear Of Missing Out) to buy something by adding new money outside the system or sell my holdings in panic.
An automated System is better
A system with 3rd party checks or an automated system is even better as it’s protected from investor’s emotions. Third-party checks like a maximum limit on the amount that can be transferred from bank account to Depot account each month.
An example of an automated system is a savings plan offered by various brokers. Under the savings plan, the broker will automatically deduct a fixed amount from your bank account and buy the shares selected by you every month. This automation not only makes investor’s life easy but also protects investor’s portfolios from investors themselves.
Therefore, once you have a system; believe in it and stick with it. I review my system every quarter and make any adjustments if required based on my current situation.
Habit 3: Believe in Yourself
Most importantly believe in yourself. There is a lot of outside noise that can easily distract an investor. One of the purposes of creating and following a system is to protect an investor from such outside noises. However, a system has its limits and can protect you from You to a certain extent. Therefore if you believe in a business and invest in it; don’t forget to believe in your research. Never let Mr. Market or anyone doubt your decision.
I have more than 50 stocks in my portfolio and not every stock has performed the same. But, my winners over-shadowed my losers.
It is not important how many times you were right. What important is, how much you earned when you were right and how much you lose when you were wrong.
Habit 4: Read At Least 10 Pages of a Book Every Day
I myself realized the importance of reading books every day recently. By reading, I don’t mean reading fiction or Hollywood news. I mean to read world or business news, read books or articles on stock investment, productivity, motivation, etc. Read something that makes you more knowledgeable than before.
Make a rule to not go to bed unless you have learned something new today. Consume as much knowledge as you can.
As, after knowledge comes wisdom
Join #100BooksChallenge or book clubs or compete with your friends. Do what works for you, but read every day. As Robin Sharma also wrote in his book “The monk who sold his Ferrari”, it takes only 20 days to replace one habit from another. So, read for 20 days continuously and it will become a habit.
Lastly, I would like to stress the importance of reading books over reading articles, blogs or forums. Books are more detailed and structured as compared to articles. In addition, it’s easier to find a book written by an expert in a field than an article written by an expert. Therefore make sure to prioritize reading books over an article on the internet.
These habits not only helped me in realizing my financial goals but also other personal goals. I hope these habits will help you reach your goals. Let me know in the comments, the habits that helped you in achieving your goals.
