In a previous column, I endorsed author James Clear's view that, to a great extent, your outcomes in life are a lagging indicator of your habits. Your knowledge is the sum of your learning habits. Your health and fitness are the sum of your eating and exercise habits. Your net worth is the sum of your saving and investing habits. Adopt the right financial habits and, before long, you'll show up in the annual survey by Spectrem Group, a consulting and research firm that tracks U.S. millionaires. At the end of 2020, Spectrem found that the number of wealthy Americans increased for the 12th consecutive year. There have never been more U.S. households with a seven-figure net worth. And given the performance of stocks, bonds and the housing market this year, we're likely to hit another record in 2021. Of course, most millionaires never start a computer company in their garage, make a platinum record or play third base for the Yankees. But the vast majority followed a remarkably similar path. They adopted good financial habits and stuck with them, not just for years but for decades. With a nod to mega-bestselling author Stephen Covey, I call them "The Seven Habits of Highly Successful Investors." Here they are in a nutshell. No. 1: Highly successful investors live within their means. It doesn't matter what a terrific investor you would be if you had capital. You must have some to get started. And since few of us are lucky enough to inherit it, marry into it or win the Powerball, that means beefing up your education or marketable skills to maximize your income. Then make sure your outgo is less than your after-tax income. Saving 10% annually is a minimum goal. More is better. No. 2: Highly successful investors own their homes instead of renting them. This isn't always possible when you're just starting out and don't have credit history or a down payment - or if your job or circumstances require you to move frequently. But building equity beats the heck out of lining your landlord's pocket, especially when you keep score in decades. Rent long enough and you'll have paid what it costs to own a house, but you'll have nothing to show for it. No. 3: Highly successful investors take calculated risks. It takes guts to invest the money you've earned, paid taxes on and foregone spending, and expose it to potential losses. But super-safe investments like money markets, CDs and T-bills don't even keep up with inflation. High-returning assets fluctuate in value, sometimes wildly and at totally unexpected times. That's just the price of admission. Get used to it. No. 4: Highly successful investors asset allocate. This term refers to how you divide your portfolio among stocks, bonds and cash. It includes equity subcategories like large cap and small cap, growth and value, and domestic and international, as well as fixed income subcategories like high grade, high yield, tax-free and Treasury Inflation-Protected Securities. No. 5: Highly successful investors are disciplined. You can't buy and sell on a whim - or for emotional reasons - and expect to prosper. The stocks you own should meet key criteria before you buy them. That might include certain sales and earnings growth, return on equity, product innovation, quality of management, or insider buying. Sell disciplines vary, including annual rebalancing for index funds and trailing stops for individual stocks. These will increase your returns while reducing risk. No. 6: Highly successful investors keep a sharp eye on investment costs. The goal is for you to get rich... not your advisor. Fortunately, fund fees, trading commissions and investment minimums have been coming down for years and have never been lower. In many cases, they are now zero. Celebrate it. No. 7: Highly successful investors tax-manage their portfolios. If you are eligible for an IRA, 401(k) or other qualified retirement plan, take advantage of it. Pretax dollars beat post-tax dollars, especially when there is employer matching. (Also known as "free money.") Retirement accounts are ideal for holding tax-inefficient investments like high-yield bonds, real estate investment trusts (REITs) and high-dividend-paying stocks. Outside your retirement accounts, you can still avoid the prying hands of the IRS by buying and holding individual stocks - you owe no capital gains taxes on equities you don't sell - owning index funds, offsetting capital gains with capital losses where possible, and investing in tax-free municipal bonds rather than taxable ones. Can investment success really be this simple and straightforward? Yes and no. The principles themselves are easy to understand. But I could spend hours filling in the blanks and talking about the details - as I often do in my e-letter, Liberty Through Wealth. The first step is to understand the power of good financial habits. The second is to adopt them. And the third is to stick with them, even when the going gets rough, as it will from time to time. Remember to cut yourself some slack too. No one is a perfect saver. We all have unexpected expenses, short-term emergencies and occasional indulgences. The idea is to strike a balance. It would be a pretty dull life otherwise. (Saving all your money for retirement is like saving up all your sex for old age. It doesn't make a lot of sense.) No one is a perfect investor either. Like everyone else with 35-plus years of experience, I look back at the stocks I wish I'd bought, the ones I wish I'd sold and the ones I wish I hadn't. You don't have to get everything right all the time. But you do need to get the big things right most of the time. So save regularly. Build equity. Manage risk. Asset allocate. Stay disciplined. And keep a close eye on expenses and taxes. Stick with these habits and investment success will follow. Good investing, Alex | 
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