It seems that the commitment made to resolutions each New Year is such a common pastime that the United States government actually has a web page dedicated to the “Top New Year’s Resolutions.” According to the “government-made-easy” site (www.usa.gov), there are a dozen or so popular resolutions that we seem to revisit year after year. This year, think about taking those same resolutions and applying them to your investments and finances. Here are a few ideas for The Disciplined Investor:
Lose Weight – Put your investment portfolio on a diet! In other words, get rid of the fat and keep it off! Look carefully through the list of your investments. Do you have stragglers that you are keeping just because they have been there for years? There is no better way to clean up AND rebalance a portfolio than getting rid of non-performing positions. Make a list of the stocks, bonds and mutual funds that do not seem to meet your investment objectives. Be critical and maybe even a bit brutal and cut out the unnecessary load.
Pay Off Debt – Be careful not to over-borrow. While margin can be utilized for good reason, it is not appropriate for most investors. Make sure that your accounts are free from margin debt and commit to paying down any outstanding loans. Close positions that have been bought on borrowed money. If you have been accessing the margin features of your brokerage accounts to pay down bills…DON’T!
Save Money – It is time to stop paying high commissions and fees. There is no reason for anyone to be paying the high costs associated with front- or back-end loaded mutual funds. Of course, even with no-load funds, the managers will take some type of fee; but be careful not to pay higher than the average for funds within the same objective category. Consider utilizing low-cost Index Funds and ETFs this year. Also, talk with your stockbroker about reducing the fees associated with stock and bond trading. Today, there are several reputable and very accessible deep discount brokers that can offer substantial savings as an alternative to the high costs associated with traditional stockbrokers.
Get a Better Job – Even if you are content with your current position you can still take a close look at the benefits that are offered by your employer. Are you maximizing all of the plans that are offered? Is your 401k receiving the maximum amount of annual contributions from all sources? Have the premiums that you pay for health insurance been shifted to a pre-tax basis? Ask your HR department representative for a personal meeting to review the plans available and see if you are participating fully with all that that may fit your needs.
Get Fit – “One-two-three-four, I will review my finances more and more!” It’s time to commit to reviewing your finances on a regular basis. Avoiding statements and allowing for “financial-lethargy” will get you nowhere fast. Just like it is good for your body, exercise is good for your pocketbook. Spend at least one to two hours a week reviewing your finances and making sure you understand where you stand. Review statements, confirms and mail related to your finances to ensure that your plan is on track, each and every week.
Eat Right – They say: “Eat a bagel, look like a bagel!” The same is somewhat true with regard to your portfolio; “Buy lousy investments, have lousy investments.” Start looking carefully at the ingredients/fundamentals that make up the companies you are buying. Look at the ratios, the management and the overall health of the company before you decide to add it to your portfolio this year.
Get a Better Education – Commit to reading three investment books this year. Start with the basics and work your way toward the more advanced topics. Check out an online bookstore’s bestseller lists in the area of investing and money management or go to your local library and see what is getting good reviews. Subscribe to a few featured iTunes Business/Investing podcasts and learn about areas of finance that you may not be familiar with.
Drink Less Alcohol – All too often we become intoxicated on our own success. We tell stories about the profitable trades and forget about the losing ones in an attempt to show off our stock market prowess. Stop reveling in the success stories and begin to look at the bigger picture. While many of the discussions held on golf courses and shuffleboard courts are filled with the tales of recent stock winners, ask your buddies about the losers so the real stories can show through. Here is a twist: Ask your friends to tell you about one loser for every winner they brag about. (Good luck with this one!)
Quit Smoking Now – Red-Hot and Smokin’ are adjectives that describe many a stock tip. Unfortunately these often turn out to be big ugly losers that eventually need to be sold for a deep loss rather than the helping provide for an early retirement package. Stay clear of any friendly advice that seems too good to be true. Ask yourself why you have been specially chosen to receive this amazing inside information. Then, ponder how is it that this particular penny stock is going to be priced at $100 within a few weeks. Finally, the next time someone tells you: “this one is going to be the next Google,” politely tell them to F&^K-OFF!
Reduce Stress Overall – The high levels of stress that you feel when your portfolio is riding the market rollercoaster is unnecessary. Reduce portfolio volatility by diversifying your investments and adding positions that can hedge risk. Make sure that you have separate and distinct investment positions that cover the wide gamut of asset classes, sectors and industry sectors. If you are unsure if you have done a good job at this, seek professional advice to help review your holdings.
Reduce Stress at Work – Stop checking your positions every 20 minutes. Change the startpage for your office computer’s Internet browser to something outside of the world of finance. There is no reason for the average investor to continually check the values of their portfolio. Let the stew simmer for a while. Nothing is going to change by compulsively checking portfolio values and stock prices throughout the day. What do they say again? Oh yes: “A watched pot never boils.”
Take a Trip – Plan to visit your investment advisor and commit to taking a good look at your portfolio. Review your tax plan, revisit and discuss your estate plan and ask if there have been any changes within the tax and investment areas that may be of benefit. Be sure to ask about new tax initiatives as well as strategies that may help to create additional efficiencies.
Volunteer to Help Others – Take some of your knowledge and help a friend. Maybe you have a good advisor, read a great book or found a good site, podcast or blog. Share that information so that your friend may benefit. Ask them to return the favor and soon enough, you will have a nice network of friends referring you great investment ideas.
With those committed to, Dr. Bernard Davidson, a family psychologist at the Medical College of Georgia Health System, provides simple advice on how to help keep your resolutions well beyond the first week of the New Year:
* Be committed.
* Be prepared for setbacks.
* Track your progress.
Happy New Year and best wishes for good health and profits throughout the coming year! Please comment with your best ideas and resolutions for 2008.