- New Year?s Resolutions
These New Year?s Resolutions for 2012 are?investing basics that will make you a more successful investor. Most of us make New Year?s Resolutions and then forget about them after a few weeks because they are hard. These resolutions aren?t hard; they just take some discipline, time, and the desire to be successful.
1. Take Control of Your Future
Are you tired of opening up your statement and not liking what you see? Take control of your own financial destiny. Don?t allow others to control your wealth and your future!? With all the scams and triple A institutions going bust it makes sense to self-direct your investments. You can do it yourself; it?s not that hard with the right resources.
2. Have an Investing Plan
Pay yourself first. Most people require an automatic investment plan. Do whatever it takes to make yourself invest as much as you can, as early as possible. First priority is investing in a 401k plan matched by your company, or a Traditional or Roth IRA. These investment vehicles give you the advantage of growing your money tax deferred, or in the case of the Roth IRA, tax free.
3. Make Asset Allocation First Priority
How?you divide your assets will determine 90% of your returns! Can you believe that? It?s true; studies have proven this is the most important concept of investing. Most people spend too much time on what stock to buy and too little on how much to invest in each asset category. Spend time learning more about asset allocation.
4. Have a Risk Management Plan
How much of your investment portfolio can you afford to lose? Make sure you understand breakeven loss analysis. Make diversification an important element of your portfolio management. Set parameters that you don?t violate.? For example, I never invest more than 5% of my portfolio in any one stock, or 15% in any one Exchange Traded Fund (ETF), or 25% in any one industry.
5. Have an Investing Strategy
It?s important to have an investing strategy; an understanding of how you choose to invest. Are you a value, contrarian, growth at a reasonable price, growth, or momentum investor? An investor does not have to pick one strategy, but should maintain a consistent methodology, and understand how and why they are picking an individual investment.
6. Follow the Rules
It doesn?t do any good to know the right things and deviate from your plan. Follow the rules and parameters you set for yourself. It?s usually better to push yourself aggressively to save. It?s usually better to be conservative and cautious when you?re unsure about investing. It?s better to be too conservative and not lose money than experiment and make mistakes that set you back for months or years.
7. Keep Expenses Low
You only get to keep what you make. Don?t allow excessive trading or high fund costs to eat up your returns. The average long term rate of return in stocks is 6.5% after inflation. If you have a mutual fund with a 2.0% expense ratio your expected long term rate of return is only 4.5%. Pay attention to expenses.? I like investing in individual stocks and ETFs to keep my expenses low!
8. Get Help
You don?t have to do this by yourself. There are plenty of good services that provide sound guidance to help keep you from making the big mistakes that destroy wealth. Find someone you agree with and has the same philosophy and temperament that you do. Then learn and grow your investment knowledge and skills and begin controlling your own wealth and destiny!
I wish you a Happy and Prosperous New Year in 2012!
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