By Michael Mason
Once again, it’s time to make some New Year’s resolutions. This year, in addition to promising yourself that you’ll hit the gym more often, learn a new language or take up a musical instrument — all worthy goals, of course — why not set some financial resolutions?
Consider these suggestions:
Boost your retirement account contributions. If your income will rise this year, consider putting more money into your employer-sponsored retirement plan, such as a 401(k), 403(b) and 457(b). You typically contribute pre-tax dollars to your plan, so, the more you put in, the lower your taxable income. Plus, your money can have tax-deferred growth potential.
Don’t over-react to the headlines. Lately, you’ve heard a lot about the “fiscal cliff,” political paralysis, the debt ceiling and other Really Scary Topics. These issues are not insignificant — but should they keep you from investing? After all, in any given year, you won’t have to look hard to find warnings and negative news events — and many people do use these ominous-sounding headlines as a reason to head to the investment “sidelines” for a while. But if you’re not investing, you’re unquestionably missing out on opportunities to make progress toward your financial goals. So, instead of focusing on the news of the day, make your investment decisions based on the fundamentals of those investments you may be considering, along with your goals, risk tolerance and time horizon.
Keep whittling away your debt. Over the past few years, Americans have done a good job of lowering their debt burdens. Of course, the economy is still tough, and it can be challenging to avoid taking on new debts. But the less debt you have, the more you can invest for your retirement and other important objectives.
Rebalance your portfolio to accommodate your risk tolerance. If you spend too much time worrying about the ups and downs of your investments, then your portfolio’s potential for volatility may be too great for your individual risk tolerance. On the other hand, if you continually see little growth in your holdings, even when the financial markets are going strong, you may be investing too conservatively — especially if you are willing to take on some calculated risk to potentially boost your returns. So review your portfolio at least once in 2013 to see if it needs to be “rebalanced” to fit your risk tolerance.
Get some help — Navigating the investment world by yourself is not easy. For one thing, there’s a lot to know — different types of investments, changing tax laws, the effects of inflation, interest rate movements, and much more.
Furthermore, when you’re making investment decisions on your own, you may have a hard time being objective — so you might end up investing with your heart, and not your head. The need for knowledge and objectivity point to the advantages of working with an experienced financial professional — someone who understands both the financial markets and your individual needs and goals.
These aren’t the only financial resolutions you could make for 2013 — but if you follow through on them, you may well need to make fewer ones when 2014 rolls around.