For me, the best way to get passive income is from dividend-paying shares. And I can aim to double my passive income by reinvesting that dividend stream to help compound my gains.
The goal is to draw a larger passive income from shares later when I’ll need it — perhaps in retirement. But if my passive income potential is to keep on growing, I’ll need to invest well. So I’ve adopted five investing habits.
1. Invest regularly
I like to invest once a month. And to do that, I’ve set up automatic transfers into my chosen funds and shares. To me, the habit of regular investing is one of the keys to building wealth over time. And I’m hoping my steady approach will help to iron out the effects of volatility over the long run.
2. Diversify
Rather than putting all my money in just one or two ‘conviction’ stocks, I aim to diversify across several investments. So my tracker funds and stocks cover different sectors, geographies and business sizes from small-caps to large-caps.
But I’m also diversified across asset classes as well. To do that, I own property and cash as well as shares.
3. Manage emotions
We humans are emotional beings. But emotional responses can get in the way of good investing. For example, with share prices weak right now, I think it’s a good time to invest in shares to hold for the long term. But it doesn’t feel like it. All the worrying news in the headlines makes me feel like doing anything but investing. However, that’s my emotions getting in the way. I need to keep them in check.
4. Adopt a comfortable strategy
Many different investment strategies can be successful in the stock market. But it’s important for me to stick with one I can live with. And my strategy with all its rules and quirks is probably unique. And that’s probably true for everyone.
5. Invest long term
My aim is to get the most from the process of compounding. And to me, that means holding on to winning shares for the long haul as underlying businesses compound growth in their earnings year after year. However, I likely won’t pick winners every time. Therefore, I’m prepared to correct mistakes along the way by selling shares if it’s clear my investment thesis has failed.
I’m optimistic these habits will continue to serve me well over many years to come. But positive outcomes from investing in stocks and shares are never certain or guaranteed. Lots of things can go wrong in businesses. And it’s even possible for me to lose money on my stock investments over time.
Nevertheless, I’m wedded to these habits and optimistic they’ll help me to build wealth while being an engaged, lifelong investor.
