2010 New Year's Investment Resolutions - Hilton Head Monthly, January 2010

For investors, January can be a month of resolution and reflection. Certainly sober reflection on the past 16 months, one of the most difficult and challenging periods in our financial history. But also resolution, with the intent to put the lessons learned into useable investment strategy and constructive behavior.

Here are a few of our resolutions that can help you get started on your own list:

  • Favor straightforward investments and avoid complicated strategies. Never make an investment that you don’t understand clearly where the return is coming from.
  • Get good advice, but think for yourself. Trust but verify.
  • Stay away from hot tips, and market cheerleaders and doomsayers. It seems to be in our nature to favor these extremes, yet the most serious investment mistakes can usually be traced back to extremes of fear or greed.
  • Understand and monitor your investment costs. In an uncertain environment it’s something concrete you can control that will have a tremendous impact on your overall returns.
  • Make the power of compounding work for you, for compounding makes time your ally. Combine compounding with dollar cost averaging and you have a powerful investment strategy.
  • Since we can’t spend pretax dollars, invest for after tax returns. Still, don’t let tax strategies drive your investment plan, but keep them in proper perspective.
  • In a frustrating low interest rate environment there can be great risk in reaching for higher, ostensibly safe yields. Conservative investors lose a lot this way.
  • Educate yourself. Even if you are a sophisticated investor you can benefit from revisiting the fundamentals. Go to a seminar or sign up for a local investment class or workshop at Osher or Life Long Learning.
  • Don’t underestimate the benefits of diversification. Most investors suffered last year, but for some, over reliance on a few big names in their portfolio turned a market loss (which can be recovered) into a capital loss which cannot.
  • Use asset allocation to control risk. Your mix of stocks, bonds and cash and the way you rebalance are the key determinants of both risk and return over the long term.
  • Think more about your investment behavior than market predictions.  Did you have the means and discipline to buy stocks or funds in 2009 when stock prices were low?  Will you next time around?
  • Overconfidence is a snare that drags down investors time after time. Women seem less prone to this, and are better investors for it.
  • Finally, give yourself credit if you stuck out the market declines and have been there for the partial recovery.  Volume was massive on the worst days of the market declines, and many investors sold out at the bottom.
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