The start of the new year is a great time to make changes for the better. While things like your health and relationships should always be at the forefront of your priorities, refining your investment style will also make a huge impact on your well-being.
In this post, we’ll go through five important investment resolutions you should start making right away in the new year.
1) Develop Your Investment Plan
The first thing to do (if you haven’t already) is to make your investment plan. Your investment plan can be something as simple as:
- Your goals. These might be things like when you’d like to retire or how much money you think you’ll need.
- What kind of assets you feel comfortable investing in.
- How much money you should be saving each month to hit this goal.
For example, your investment plan may be that you need to save up $2 million in order to retire. You feel comfortable investing in stocks, but you don’t want to go too aggressive. Therefore, you decide to go with an asset allocation of 80/20 stocks and bonds returning roughly around 7 percent per year. To hit your goal, you estimate that you’ll need to save up roughly $1,765 per month including employer 401(k) contributions.
The importance of your investment plan is that it serves as the foundation for all of your future financial choices as well as the roadmap for where you’d like to go. Keep in mind that this plan can be dynamic and change as the needs in your life change too.
2) Max Out Your Contributions
A lot of people spend an enormous amount of time trying to find that magic investment or combination of assets that is going to produce higher-than-average returns. However, one action that would help your investment plan more than anything is to simply contribute more to your 401(k) and IRAs.
Simply put, the more money you contribute, the more volume of assets you have to put to work with compound growth. While you can’t control how much the markets return, deciding how much you’d like to contribute is completely up to you. In fact, the IRS just raised contribution limits to 401(k)s and IRAs, so there’s plenty more you could be saving.
If you’d like to see if you could be contributing, then try a budgeting app like Buxfer to monitor your spending habits and see where cuts could be made. By trimming the fat from your budget, you’ll be able to reallocate this money toward your investment plan and put it to better use.
Additionally, instead of trying to find the perfect investments, make life easy and go with index funds. Index funds follow simple market averages capturing the broad return of the entire market. With an index fund, you do no better and no worse than the average return of all stocks or bonds. That’s perfect for both newbies and experienced investors alike.
3) Continue Learning Something New
A habit that I believe would help more people to become better investors is to commit to learning a new topic or skill. The world of investing is far and vast, and so there is an endless sea of strategies and concepts to explore.
For instance, you may have heard that a lot of people become wealthy through real estate. However, aside from owning your own home, you might not know anything about being a landlord or flipping homes. This is where being curious and taking the time to learn about how investment properties work could be to your benefit. It’s entirely possible that you may even spend some time learning about this topic and decide that it’s not for you, or that an alternative type of investment such as a REIT would be a better choice.
Thankfully, there are thousands of fantastic content creators out there generating blog posts, videos, and podcasts about a wide variety of investment topics. Spending just one to two hours a week absorbing this information and deciding whether or not to put it into practice will make you a more well-rounded investor and better equipped to make higher-level financial decisions.
4) Spend Less Time in An Echo Chamber
We’re guilty from time to time of a phenomenon called “information bias”. This is when we tend to only listen to or accept news that affirms or validates our chosen investment strategies. It’s human tendency to naturally surround ourselves with people or information that makes us feel “good” about what we’re doing. However, this can be extremely dangerous to your investment plan.
For instance, if two years ago you were caught up in the crypto-craze with Bitcoin and other tokens, then you would’ve had no trouble finding droves of Youtubers proclaiming that the sky’s the limit for how much money you’re going to make with these assets. However, 2022 was a devastating year for the entire crypto industry, wiping out well over $2 trillion worth of value. When we only listen to what we want to hear, it makes us shortsighted to very real risks and dangers that we might be walking straight into.
To help improve your investment strategy this year, I’d encourage everyone to seek out information from both sides. Learn both “why” and “why not” to try something. Again, this will not only round out your knowledge, but you’ll be better enabled to weigh the pros and cons and make your own decisions with confidence.
5) Ignore the Noise
Finally, one piece of advice that I think would help most people (not just when it comes to investing) is to stop listening to the doom and gloom of the media. The media thrives off of creating attention-grabbing headlines, and unfortunately, most of these paints a less-than-favorable picture of the future. No matter what news feed you scribe to or a social media platform you use, you can always find content like this. Do your best to ignore it.
Often, especially when it comes to finances, these headlines are skewed. They might start off talking about how danger is lurking ahead. However, the more you read or listen to it, their argument is nothing more than pure speculation or the opinion of one fanatic. This is why it’s so important that you vet where you receive your information and try to find a source that’s as unbiased as possible.
The best thing you can do for yourself is to stick to your investment plan. Although you’re certainly allowed to make improvements and tweaks if your lifestyle calls for it, don’t change course just because one person thinks that the entire stock market will crash. Instead, ask yourself what’s realistic and reasonable. Listen to rational arguments from both sides and draw your own conclusions. Since no one can see into the future, what you believe will happen has just as good of a chance of coming true.
Featured image credit: Unsplash