New Years Resolutions for InvestorsThis is the time of year many of us think about establishing a few New Years resolutions. This typically means committing to losing weight, or exercising more, or relaxing more to improve the quality of our lives. In addition to good physical health, good f inancial health can also contribute to a more fulf il ling and rewarding lifestyle. So, just as resolutions for improving our physical health can be helpful, some investors could probably benefit from resolutions that target their f inancial health as well. Just as many individuals endanger their well-being with bad habits, some investors adhere to misguided practices that are detrimental to their f inancial well-being. Maybe a set of New Years investment resolutions, in addition to working with an advisor who can help an investor stick to them, will lead to the possibility of a more secure f inancial future. Most of us want to be healthier, and many of us want to be wealthier, but its just not that easy. Many of us are creatures of habit who f ind that making permanent changes to our behavior is surprisingly diff icult. We need every possible mental crutch at our disposal to help us follow a new programhence the importance of establishing mental road signs, such as New Years resolutions, to assist us in achieving our newly established goals.
To make achieving our goals more diff icult, our commitment to those resolutions is sometimes tested by examples of those who ignore sensible behavior, to their apparent advantage, and those who follow it, to their apparent harm. Winston Churchill lived to age 90, fortif ied by an ample supply of champagne and cigars. Contrast that behavior to that of author and jogging enthusiast Jim Fixx, who is credited with launching Americas f itness revolution by popularizing the sport of running and demonstrating the health benefits of regular jogging, yet who died of a heart attack at age 52. In the f inancial world, the investor who sunk every penny into Apple shares 10 years ago watched that investment multiply impressively, while a globally diversif ied equity-only portfolio lost money. These isolated examples may test our resolve, but should not encourage us to abandon a proven set of strategies. Continuing to apply those strategies in the face of isolated instances like those mentioned above will stil l improve our odds. So, for those who f ind making such promises useful, here are 10 investment-related resolutions that will hopefully result in greater long-term wealth:
1. I will keep a long-term perspective and appropriately consider my investment horizon, how long my portfolio is to be invested, when determining my performance horizon, and the time frame I use to evaluate results. It is very easy to develop a short-term performance bias, but reacting to current market conditions is a prescription for market timing.
2. I will follow my plan and continue to rebalance on a regular and routine basis. This may seem like selling the winners and buying the losers, but rebalancing maintains the proper overall asset allocation that fits with financial goals and objectives. It also prevents investors from chasing the latest and greatest performing asset as discussed around the office, or on TV, or in the press.
3. I will ensure my portfolio is appropriate for my goals and objectives by only taking risks that are in line with my goals and objectives. While it might be tempting to achieve a higher rate of return, subjecting a portfolio to that additional risk is not prudent and can result in sleepless nights and unnecessary worries.
4. I will not focus my portfolio in a few securities, or even a few asset classes, as a well-diversified portfolio remains a proven and verifiable strategy.
5. I will try to manage my emotions by learning about and acknowledging the prejudices and intellectual errors that can, and sometimes do, influence my behavior.
6. I will pay attention to fees of all types in order to keep my cost of investing reasonable.
7. I will not confuse entertainment with advice. I acknowledge that the financial media is in the entertainment business and their message can compromise my long-term focus and discipline, leading me to develop a short-term bias as well as a tendency to make poor investment decisions. If necessary, I will turn off CNBC and turn on ESPN.
8. I will stop searching for tomorrows star money manager, as there is no one who consistently outperforms the market year after year. Capitalism will be my guide, because with capitalism, there is a positive expected return on capital, and it is there for the taking. And for me to succeed, someone else does not have to fail.
9. I will not invest based solely on a forecast, whether it is mine or someone elses. I recognize that the urge to form an opinion will never go away, but I wont act on it because no one can repeatedly predict the future. The future is, by definition, uncertain.
10. I will continue to invest new capital, even though I may dread what the market will do the day after I invest my capital, and follow my plan because it is time in the market, and not timing the market, that matters.
Capital ConversationsDecember 2012
Continued...Copyright 2012 REDW Stanley Financial Advisors, LLC. All Rights Reserved. This publication is intended for general informational purposes only. The information contained does not constitute legal financial, accounting or other professional advice.
Capital ConversationsMost of us f ind it hard to follow a sensible diet or a sensible investment strategy 100 percent of the time. If you must stray when managing your f inancial wealth or physical well-being, moderation is the key. Chocolate cake is okay, as long as its not for dinner every night. Speculating on a stock or two is all right, as well, with dollars you can afford to lose, as long as you dont do it with your hard-earned and long-term investment capital.
Finally, just as successful athletes rely on coaches and trainers to help them achieve their goals, most investors can benefit from having a f inancial coach to remind them about their New Years resolutions and keep them on track toward a more prosperous future. The professionals of REDW Stanley can be your coach and trainer and are ready to assist you in establishing and following your New Years investment resolutions.
Our best wishes for a prosperous and healthy 2013.
By Laura Hall, CIMA, AIF Portfolio Manager/
Chief Trading and Operations Officer
1. On November 1, 2012, REDW merged with two prominent Phoenix-based firmsAbalos & Associates PLLC, and Miller, Allen & Co., P.C. The consolidation under the REDW brand offers all three firms a broader set of resources, a greater depth of technical experience, and a more dynamic infrastructure to support their clients evolving needs.
2. The Economy: When markets become volatile, it can be easy to lose perspective. Since the November 6th U.S. Presidential Election and as of November 16th, the S&P 500 has fallen nearly 5% as concerns have shifted from who will be the next U.S. President to how the fiscal cliff will be resolved. It appears reasonable that Congress will come up with a solution the biggest question is when. So, as uncertainty continues to plague markets, investors should remember that markets rarely move higher in a straight line. Since February 2009, the S&P 500 has fallen by more than 5% in 6 different months, but has risen more than 5% in 10 different months, and is up over 100% since the March 2009 low. Given that this market volatility will likely continue until the fiscal cliff is resolved, it will be important for investors to stay balanced and not panic in the face of a choppy market.
3. Our Clients: Our clients are remarkable. Last newsletter we congratulated a couple who celebrated their 50th wedding anniversary. However, we want to congratulate another client who recently achieved another noteworthy milestone in their married life as they celebrated their 70th wedding anniversary.
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2012 H. Schwadron. Used with permission.