Why Investors should avoid New Year’s Resolutions
January 6, 2011
SAN DIEGO (ETFguide.com) – Full Disclosure: I don’t believe in New Year’s Resolutions. For one thing, I know they don’t work because by the second week of January most people have either broken their resolutions or long-forgotten them.
And besides that, for people with money to invest, it shouldn’t take a new calendar year to miraculously discover that financial organization all the time is a must. The absolute best occasion to implement a realistic investment game plan is immediately, not just when a new year has started.
Let’s analyze two timeless resolutions that anyone at anytime can implement.
1) Cultivate the Right Qualities
Compare and contrast the qualities of successful individuals versus everyone else.
Financially mature people are deliberate, logical, disciplined, organized, alert, decisive, prepared, educated, calm, economical, focused and realistic. They understand that investing is not a game like certain mascots in the financial media try to make it.
On the other hand, people that suffer from financial puberty* are stubborn, arrogant, compulsive, forgetful, fearful, lazy, overconfident, gullible, uninformed, impatient, neurotic and unrealistic.
Are you cultivating the right characteristics and psychology that lead to success or have you become your own worst enemy? The only way to get your money right is to first get your mind right.
2) Keep Your Plan Simple
What’s better, a complex investment plan or a simple one? Before answering that question look at recent history.
Wall Street’s insatiable desire for complex investments and strategies nearly blew up the entire financial system in 2008. Complicated financial instruments like CDOs, CMOs, CDSs and so forth turned out to be a very bad deal for investors. To add insult to injury, Wall Street’s financial engineers made out like bandits.
What about today? The more things change the more they stay the same. And even though the crisis of ’08 has passed, lingering threats remain and new ones have emerged thanks complex investment booby traps.
If there’s one truth about investing, it’s to err on the side of simplicity. What does that mean?
One of the simplest investment strategies is to index your portfolio to the market. This is easily achieved by owning low cost index funds or ETFs that reach key investment categories.
Examples of key investment groups required to build a diversified portfolio are commodities (NYSEArca: GSG), U.S. stocks (NYSEArca: VTI), U.S. bonds (NYSEArca: AGG), international stocks (NYSEArca: EFA), emerging market stocks (NYSEArca: EEM), real estate (NYSEArca: RWO) and cash.
The exact percentage of exposure to each of these areas is your “secret formula” and will probably be different from other people. You should always strive to get a portfolio mix that matches your age, your goals, your level of risk tolerance and your personality.
The fact is most stock pickers, traders and professional money managers consistently underperform the market and 2011 won’t be any different. That means to avoid these money losing strategies you must index your serious money to the market. Doing so will increase your personal odds of financial success while minimizing your investment fees and taxes.
Here’s one final reason not to buy into New Year’s Resolutions: Some of us are a lot slower than others which means epiphanies of implementing a realistic financial game plan may not come to us until July or August. That means waiting until the New Year for a “good start” versus starting right away does nothing but encourage a culture of procrastination.
Regardless of what time of year it is the best time to implement a realistic and well planned investment game plan is now.
*Financial puberty is an immature or juvenile state of financial being that prevents individuals from financially prospering. Its three main branches are 1) behavior finance/disorder, 2) lack of financial education, and 3) having the incorrect financial philosophy.