The beginning of a new year is always an important moment for personal reflection.
And whatever it is that we want from our lives – whether it’s to become a better spouse, begin a new exercise routine, or just become better people – we must recognize that change is imperative if we’re going to reach our goals. Doing the same thing repeatedly and expecting a different result only has one irrational outcome: We end up perfecting our mistakes.
Successful and purposeful investing is more than just buying and selling the right thing at the right time. It’s more than just trying to limit volatility (NYSEARCA:SPLV) or having a casual knowledge of stocks (NYSEARCA:DIA) and bonds (NYSEARCA:BOND). It’s also much more than being a good saver, because “good savers” aren’t necessarily “good investors.”
An intelligent investment approach is all about having a disciplined framework that puts the odds of financial success overwhelming in your favor during any kind of market climate, not just when stocks (NYSEARCA:VOO) are rising. This, by the way, doesn’t describe the investing masses. They suffer from financial fragility (ChicagoOptions:^VIX), as Nassim Nicholas Taleb might say. It’s the sad result of building one-dimensional investment portfolios around hunches and hope, rather than odds.
In my latest Index Investing Show podcast, I give you a timeless investment philosophy that is summed up in just three easy to remember words. It’s a philosophy that will serve you well in 2016, no matter what lays ahead. And it works on IRAs, Roth IRAs, 401(k), 403(b), 457 retirement plans, and other types of investment accounts.
With the prospect of a new year ahead, it’s crucial that you be ready and I’ve assembled a short list to help you get started.
For investors, here’s a brief checklist of questions you should be asking right now:
- Is the cost of my investment portfolio rising or falling?
- Is the risk character of my investment portfolio truly compatible with my age, life situation, and overall goals?
- Have I made it a priority to install a margin of safety within my investments before market conditions change? If not, why?
- How would my portfolio behave if the stock market lost 20% or more?
- Would a severe market decline delay my retirement date or negatively impact my lifestyle?
- Is my portfolio over-diversified or under-diversified?
- Do I own too much of the same stuff?
- Are the tax liabilities inside my portfolio rising or falling?
- Am I willing to make the necessary portfolio adjustments right now to improve or am I too stubborn?
If you work with a financial advisor, here’s a checklist of questions you should be asking right now:
- Do I have a written investment policy statement? If not, why?
- Has my advisor been sued, fined, or censured and not told me?
- Does my advisor only contact me when he/she wants to sell something?
- Have I asked my advisor for a fee reduction?
- Is the portfolio being managed by my advisor designed to minimize investment cost and taxes to the greatest degree possible?
- Is my advisor still measuring my portfolio’s performance with distorted yardsticks like all equity or all bond benchmarks?
- Is my advisor double dipping on the fees charged to my account plus other fees collected from investment companies?
- Is my advisor a faceless and brainless algorithm that invests my money generically?
Also in my latest podcast, I do an $800,000 Portfolio Report Card for J.C. in Zion, IL. They are a married couple in their early 40s and they’ve managed to accumulate a nice sum. Nevertheless, they’re concerned about the cost, risk, diversification, tax-efficiency and performance of their portfolio. How do they do? I analyze and grade each of these areas in the podcast and give them a final grade of A, B, C, D. or F.