You Say You Want A Resolution

“Good resolutions are simply checks that men draw on a bank where they have no account.”
 -Oscar Wilde

Financial and investment planning are important year-round, but the best and most successful  investors  use January as an opportunity to reflect on the highs and lows of their money moves in the year past, and make their plans and resolutions for the year ahead. So while  it’s entertaining to speculate about where interest rates or the Dow will be in 2012, consider a few of our New Year’s smart money resolutions that may help make the year ahead a financial “goal mine,”  and really make a difference in the long term. 

Put my investment plan and financial goals in writing

All too often the best resolutions degenerate into a new start on old habits.  One of the best ways to avoid this; a written financial plan, one that will give continuity and consistency to your investment activity.  Identify exactly what you want to accomplish in 2012, and list of two to five specific and measurable goals. Define each goal with a timeframe, dollar amount saving strategy and desired outcome.

For example, your goal is to save an additional $20,000 for the down-payment on a summer home that you’d like to purchase in 2014. With a two-year timeline, meeting this objective requires saving $833.33 each month. Rather than rely on yourself to save, set-up a direct debit savings account; this way the money goes directly from your checking account at the beginning of each month and gets you that much closer to your vacation home.

Perfect my retirement savings plan

While maximum IRA contributions remain at $5,000, ($6000 if you are 50 years or older,) some contribution limits are increasing in 2012. You can max out your 401(k) or 403(b) with $17,000, up from $16,500 in 2011. The catch-up limit, however, remains at $5,500 for those 50 and older. Contribute at least enough to capture your employer match, otherwise, you are shortchanging your retirement fund and simply throwing money away.

Resolve to increase your retirement plan contribution each year and sign-up for automatic increases if your plan allows.  If you qualify, weigh the benefits of tax-free accumulation by contributing your after tax dollars to a Roth IRA. Consider rolling over all or part of your traditional IRA into a Roth. You can do this even if you are retired, or otherwise not eligible for a contributory Roth.

Reduce my debt

Reducing debt is key to financial security, and high cost credit cards are often the culprit Create a debt buster budget, listing your monthly net income and categories for each expenditure. Once you know what money you are working with, list all debts, interest rates and monthly payments, and apply a reasonable portion of the remaining monies to the debt with the highest interest rate or to the lowest balance. However, make it the first payment you make each month, before anything else.  If you can, consider transferring higher rate balances to lower rate cards, and taking advantage of special interest rate options. Be sure to read the fine print, though.

Don’t be overconfident

Perhaps the most costly investor sin is overconfidence. Believing that we know more than is possible about a stock, a company, or the markets in general, causes us to make all kinds of wrongheaded decisions. One particularly insidious one is a tendency to buy and sell more often. These decisions are almost always costly. A 2009 study by Professor Terrance Odean and his associates at the University of California on individual trading, suggested an average annual cost, or performance penalty, of 3.8 percentage points when compared to more passive strategies.

Ask the right (and sometimes awkward) questions

Make your monthly and quarterly reviews meaningful.  Go beyond the bottom line and ask the important and sometimes tough questions.  What contributed to performance and what took away from performance?  Which investments in my portfolio are underperforming their peers and why?  What are we doing to increase my after tax income?   When you are offered a new investment, find out its cost, and how much your broker or agent is getting paid to sell it.  It may sound like an impolite question to ask, but its not, and it is important. It’s perfectly ok for someone to be compensated for selling an investment to you, but you should know how much, and how it compares to other alternatives.

Invest my social capital wisely

Charitable gifting has suffered in the recession.  As greater demands are put on the non-profit sector and contributions decline, charities of all types have to do more with less.  The number of charities fighting for donor dollars has increased dramatically as well. Don’t let any of your important contributions fall victim to outright fraud, or go to waste in well meaning organizations that spend inefficiently or pay themselves too much.  Check out your charity at websites like or Use local resources like the Community Foundation of the Low Country,, to help direct your charitable contributions where they will do the most good.

Simplify my portfolio

Don’t equate complexity with good portfolio strategy, and don’t mistake the time you spend each month totaling your net worth to the real work of becoming a better investor.  Be ruthless in eliminating duplication in your investments.  Use time tested strategies like bond laddering and dollar cost averaging.  Make diversification your mantra for any investments that have credit risk, especially individual stocks, and corporate and tax free municipal bonds. Don’t have more investments than you can comfortably follow and keep track of.

Lower investment expenses

Consider reducing expenses by using low cost index funds instead of more expensive managed mutual funds. In 2011 some studies show over 34% of actively managed stock funds underperformed their benchmark index (and charged you for it.)  Get the cost of investing and investments in terms you can understand. This, unlike the markets, is one thing you can control.

Learn to say no!

Just say no to hot stock tips, investments that sound too good to be true (they usually are,) investment promises and guarantees that aren’t in writing, investments that are expensive, any investment that you don’t really understand, and investments that are hard to sell.

Review my financial plan, investments and asset allocation on a regular basis and rebalance when necessary.

The synergy between asset allocation and portfolio balancing makes your portfolio efficient. If your portfolio mix is not conforming to your financial plan, it is time to reassess your allocation strategy along with your risk tolerance, return expectations and investment preferences. Be certain to review your portfolio on a quarterly basis, particularly in volatile markets.  Treat your investments like a portfolio and not just a collection of purchases. Consider your mix of stocks and bonds and cash, and then the balance within each of these areas. Don’t be afraid to be a little contrarian.

Remember, without a plan, resolutions, and strategy, it is difficult to achieve your goals, even more so to realize your dreams.

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