We’re just about ready to open the door to 2017, so you might
be thinking about some New Year’s resolutions. What’s on your list this
year? More visits to the gym? Learning a new language? Mastering the
perfect beef bourguignon? All worthy ambitions, of course, but why not
also include some financial resolutions?
By reviewing your needs
and goals, you can identify some resolutions that are particularly
relevant to your own situation. But here are a few suggestions:
Build an emergency fund. If you needed a major car repair or a new
furnace, or faced some other large, unanticipated expense, could you
cope with it? If you didn’t have the money readily available, you might
have to dip into those investments intended for long-term goals, such as
retirement. Instead, build an emergency fund containing three to six
months’ worth of living expenses, kept in a liquid, low-risk account.
Cut down on debts. It’s not easy to cut down on one’s debt load. But if
you can find ways to reduce your debts, you’ll help improve your
overall financial picture. Many debts are not “useful” – that is, they
don’t carry any tax advantages – so every dollar you spend to pay down
those debts is a dollar you could use to invest for your future.
Boost contributions to your retirement plan. If your employer offers a
401(k) or similar retirement plan, take full advantage of it. Your
earnings have the potential to grow tax deferred and your contributions
may lower your taxable income. Plus, most plans offer a selection of
investment options, so you can choose the investment mix that fits your
objectives and risk tolerance. Therefore, if your salary goes up this
year, or if you think you can find other ways to free up some money,
increase your contributions to your retirement plan.
• Review your
portfolio. Is your investment portfolio still on track toward helping
you meet your long-term goals? If not, you may need to make some
changes. You’ll also want to study your investment mix to make sure it
still accurately reflects your risk tolerance. Over time, and often
without your taking any significant actions, your portfolio can “drift”
to a place where you are taking on too much risk – or even too little
risk – for your needs and long-term objectives. If this happens, you may
need to “rebalance” your holdings.
• Avoid mistakes. None of us
can avoid all mistakes, in life and in our investment activities. But as
an investor, you’ll clearly benefit from minimizing your errors. For
example, it’s generally a mistake to jump out of the market in response
to a period of volatility.
If you wait for things to “calm down”
before investing again, you might miss out on the opportunity to
participate in the next market rally.
• Think long term. Keep this
in mind: You’re not investing for today or tomorrow, but for many years
from now. Try to keep a long-term focus when making all your key
investment decisions. By doing so, you can avoid overreacting to
short-term developments, such as a sudden drop in the market or a
“momentous” political event that actually decreases in importance as
time goes by.
Try to follow these financial resolutions as best as you can. You could make 2017 a year to remember.
This article was written by Edward Jones for use by your local Edward Jones financial advisor.