Atomic Habits for Investors

I read James Clear’s Atomic Habits last week. It got me thinking about how our performance as investors can be greatly affected by our habits — both our ability to adopt (and sustain) good ones and to break bad ones. Clear’s premise is very compelling; he suggests when we can get down to the atomic level in our thoughts and actions, we can control our habits and produce the results we desire. Small, consistent changes make a big difference. He suggests four simple (but not always easy) approaches to establish a new habit. We’ll take a look at those four now.

Make it obvious

Every working adult can save some amount of money every week. Maybe it’s $500 or $5000. The amount is not the problem, it’s the behavior necessary to save it. Clear’s solution: make it obvious. State your intention, commit to it by writing it down, and then do it every week. You’ve heard this a million times over and you’ve known that it’s a good idea for quite some time. Start with whatever desired amount you’d like. What could be more obvious than that?

Make it attractive

Now that you are habitually saving, intentionally consider what is so attractive about this new behavior. Make a list. It may mean you have more investment money. It may mean you get to choose how to invest this new and increasing supply of money. It may also mean that you get a weekly reminder how much control you have over your money and your investments. Make a list of as many attractive qualities as you can about your new weekly saving habit.

Make it easy

How easy can you make it to save? Very easy. You could write a check to yourself every week. You could Paypal yourself. You could set up a new account with automatic transfers. You could even put it in your calendar as a reminder. Making it easy reduces the friction that can stall progress. Keep going with this easy habit, since you are not done yet.

Make it satisfying

Talk about it with people who want to see you succeed. How satisfying would it be to you to set a savings target and achieve it? You could tell a close friend or your spouse how you have started a new investment habit and how much benefit you have seen. You could tell a son or a granddaughter and feel the satisfaction of wisdom. You could tell your mother or grandfather and see the pride on their faces. You can make the savings habit as satisfying as you want. You just have to make it personal and authentic.

These simple atomic-level steps can be applied to a variety of investment behaviors. We covered saving because it’s the primary foundation of being an investor. Maybe you want to make charitable giving a bigger part of your life, or help a young relative get started in investing. Or you want to be in the habit of routinely evaluating different market opportunities in areas like muni bonds or international equities. Whatever habit you want to cultivate, just focus on making it obvious, attractive, easy and satisfying.

The reverse works too

I’ve really enjoyed reading Clear’s advice on developing positive habits. He also offers mirror image steps for breaking negative ones. For instance, you can make a habit unattractive and unsatisfying by publicly confessing the habits you want to break.

I recommend Clear’s book. It can really help you reorient how you look at habits and get you pointed in the right direction for investing or other matters of importance in your life.