Markets don’t make you money; your habits make you money.

As creatures of habit, we ultimately become our own best friend, or our own worst enemy. This is why it’s important to be mindful of how our emotions affect our choices and influence our behavior.

BJ Fogg, The author of Tiny Habits, shares that our habits are highly influenced by our motivation, abilities and prompts.

1. Motivation: What is the driving force behind your goal

2. Abilities: Do you have the tools you need?

3. Prompt: Have you automated your habits or do you have prompt to do the right thing?

We can remind ourselves of this time and time again, but still we might find ourselves slipping into old habits and allowing emotional decisions that spoil our financial plans.

But here’s why this concept throws us so easily: performance doesn’t follow calendar years. We do. We follow calendar or financial years as it fits in nicely with our frame of reference. The reality is that a couple of bad years doesn’t necessarily mean that your investment strategy is wrong. There will always be a better performing asset class, share or fund. There will always be that temptation to jump ship when we see another vessel moving ahead a little quicker than ours.

And this is typically where we lose our money. This behaviour assumes that the markets will make us rich, and forgets that it’s our habits that make us wealthy. Markets generate the best returns over time, and not at a specific time, which speaks to the importance of following the ‘buy and hold’ strategy rather than the ‘buy and sell’ strategy. Our behaviour of consistently building our wealth and trying to not predict outcomes is often more powerful than trying to pick the best performing investment.

A study by the DALBAR institute over the past 25 years has concluded that the average investor only received less than half of the returns the fund delivered. This is mainly due to trying to jump in and out of the market when “the time is right”. A very bad investment habit.

Emotional awareness and diligent behaviour have the biggest impact on our portfolio. Managing these two key elements to our future wealth are not easy as both can be easily swayed under the right conditions - and poor market performance creates these exact conditions!

Don’t try to go it alone when you’re feeling like this.
Having an independent partner on your side to help you process the turmoil that rides the wave of a crashing market is invaluable to building and protecting your wealth. Having a sounding board and someone to help you make decisions often leads to better outcomes as it slows down the decision making.

They will also be able to remind you that maintaining your premiums during volatility allows you to purchase shares or allocations at cheaper prices and benefit your portfolio even more in the future. Is is often described as Rand-Cost-Averaging.

Remember, it’s not the markets that will make you wealthy; it’s your habits.