With the New Year upon us, now’s a good time to create a few investing-related New Year’s resolutions. You can always improve your finances and there’s no better time to start making more money than today. Add these five resolutions to your list and hopefully next year will be more financially rewarding than this one was.
1. Stop panicking
The biggest mistake investors make is panicking. When markets start falling, investors start running away. Stop doing that. Investors are playing a long-term game and if you pull out of the markets at the first sight of bad news, you’ll lose money. Markets have always gone up over time, so stick with it and you’ll eventually be rewarded.
2. Be smart with your buys
The riskiest investments are things like commodities and small-cap stocks. While you can make a lot of money on them if they go up, you can lose a ton when they go down. In volatile markets, these types of investments bounce around so much that it’s surprising more people don’t have market-induced hear attacks. Do your portfolio a favour and stick to large-cap, dividend-paying stocks. They’re safer, the yield offers extra return and they’re better for your health.
3. Get ready to rebalance
This is something you should be doing every January. When markets rise and fall, your distribution of assets between equities and bonds changes. For instance, one of your stocks might have gone up so much that now you have 65 per cent of your money in equities, when you really wanted just 60 per cent exposure to the market.
At some point during the year, investors should look at their asset allocation. If you do have more exposure to stocks than you would like, sell some shares and buy more bonds instead. If you don’t keep an eye on your asset mix, you could find yourself owning more stock -- or bonds -- than you should.
4. Sell some shares
Yes, we just said hold on for the long term -- but you should consider selling some stocks, too. Typically people sell when a stock reaches a certain price target. If you buy a stock at $20 and tell yourself you’ll hang on until it hits $30, then sell when it reaches your target. You can make the mistake of holding on too long and then losing money when the stock falls.
Also consider selling if the company makes a fundamental change in direction. If you think they’re going down the wrong path, or if a change has precipitated a drop in share price, then it may be time to sell.
There are other resolutions you could add to the list, like buying at least one undervalued company each month, but these four tips are a good place to start.
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