The start of a new year is the perfect time to set resolutions and goals for investing in the year ahead. It’s the one time to “clean house” and reset the pins for the next push. Are you ready? Do you need to refocus your goals this year? If you set resolutions and goals right now and prioritize throughout the year, you could reach success.
If you haven’t thought much about this yet, here are a few ideas to get you heading in the right direction.
Remember the Positives
I realize this suggestion may sound a bit unrealistic. But the S&P 500 index was up 29.6% for 2013 — the annual median rise for the index is +12.64%. When dividends are factored into the mix, the return rises to 32.39%. The NASDAQ did even better. And both the S&P 500 and the Dow Jones Industrial Average closed at record highs.
In short, 2013 was an investment year for the record books, and for the history books — which is exactly where it is right now. So remember to focus on the positives!
We should not expect a repeat performance in 2014. It’s not that it’s impossible, just unlikely. For planning purposes, we should assume less generous returns this year, and even factor in the possibility of some sort of pullback.
Adjust Your Investment Strategy
Growth stocks led the pack last year, but since this is now a mature bull market this may not be the case going forward. When markets reach new highs, the focus tends to shift in favor of quality and dividend income. Making money in a more conservative market tends to be more complicated, and you need to be positioned in advance in order to take advantage of the shift.
Trend stocks — the stocks du jour, fundamentals be damned — tend to do well in fast rising markets. But when markets top out, or decline, the emphasis shifts. Investors begin looking for stocks with strong fundamentals and dividend yields. This is particularly true of institutional investors.
Plan to look for stocks with strong fundamentals and above average dividend yields. You don’t necessarily have to get out of all of your current positions and make a wholesale shift, but plan to invest fresh capital into these kinds of stocks.
Increase Your Portfolio Funding
There are two ways investment portfolios grow; through investment return and through funding.
If returns in 2014 won’t be as strong as they were last year, you can at least partially offset this outcome by increasing contributions into your portfolio. It will help your portfolio to be larger this time next year even if the stock market doesn’t cooperate.
Expand Income Holdings
Another good preparation is to expand your holdings of income generating assets. If you are beginning to move into high dividend stocks you’re already on track with this. But you can also look beyond the stock market for income opportunities.
By increasing the amount of money in income generating assets outside the stock market, you accomplish two important goals:
- You reduce your stock exposure in the event of a market decline (which is all the more likely following a record year), and
- You build up assets which can be liquidated to buy stocks later on at lower prices.
Even though they don’t yield much, give serious consideration to expanding your holdings of U.S. government treasury securities, certificates of deposit, and money market funds.
If the market does pull back, this will be one part of your portfolio that will not take a hit. And when the stock market begins turning up again, you’ll be ready with the cash.
Nothing Moves According to Our Plans
If you have been an investor for any length of time you’re already aware of this. But the new year is an excellent time to be reminded that the stock market doesn’t move according to your own plans.
We need to control what we can, and get comfortable with what we can’t. There are three major investment factors we can control:
- The amount of money we put into our portfolios
- Asset Allocation
- Specific investment selections
But there’s a fourth factor and that’s stock market performance. We have no control over this at all.
Do all that you can with the investment factors you can control, but avoid harboring any notions on investment performance.
Having the right expectations going into the New Year –- especially on the heels of a record year -– will be one of the most important preparations of all. Perhaps the worst thing you can do is assume another year of 30% returns. If you do, and the market heads south, it could lead you into making panic decisions.
Set your investment plans for the new year, do the best with what you can control, then just sit back and to be prepared to ride it out for the long haul. That’s not very specific in the way of goals, but it’s a basic part of what investing is all about.
Given the incredible performance of the stock market 2013, what are your goals and resolutions for 2014?