I decided to wait until everyone else had gone public with their New Year’s resolutions before identifying the list below.  (Plus it took the entire month of January to compile these.)

Coaching clients to become better investors – essentially, investing within the larger context of ones goals and foregoing a reliance on economic forecasts and market predictions – is a constant challenge. People generally tend to respond emotionally to the ups and downs within their portfolios, which indicates just how important money is to most of us, or at least how deeply we are connected to it.  When you add to this the effect of financial journalism (which is largely a form of entertainment and has nothing to do with the day-to-day performance of a mutual fund portfolio), it can be very difficult to stay focused or to remain rational.

With that in mind, here are ten “resolutions” which I hope will lead to good investment decisions this year and every year.

1.  I will not invest based on a forecast, mine or anyone elses.  I will recognize that the urge to form an opinion will never go away, but I won’t act on it because one cannot repeatedly predict the future.  It is, by definition, uncertain.

2.  I will not confuse entertainment with advice.  I will acknowledge that the financial media is in the entertainment business and their message can compromise my long-term focus and discipline, leading me to make poor or irrational investment decisions.  If necessary, I will turn off CNBC and turn on ESPN.

3.  I will keep a long-term perspective and appropriately consider my investment horizon (i.e. the probable life-span of my portfolio) when determining my performance horizon (i.e. the time frame I use to evaluate the results).

4.  I will continue to invest new capital when I can, because it is time in the market – and not timing the market – that matters.

5.  I will adhere to my investment plan and continue to rebalance it (i.e. systematically buying more of what hasn’t done well recently) rather than unbalance it (i.e., buying more of what’s hot).

6.  I will not focus my portfolio in just a few securities, or even a few asset classes, as diversification represents the best way to manage risk.

7.  I will ensure that my portfolio is and remains appropriate for my goals and objectives.

8.  I will manage my emotions by learning about and acknowledging the particular biases that influence my behavior.

9.  I will keep my cost of investing reasonable, in order to improve bottom line results.

10. I will stop searching for tomorrow’s star mutual fund manager, as there are no gurus, and this year’s hot-shot may well be (and many times is) next year’s flop.

The Financial Planning Gap

February 1, 2011

Undertaking a process of financial planning is rarely a front-of-mind activity, nor one that many people approach with excitement or anticipation. As important as it may be to identify, assess and prioritize a list of financial objectives, the process can be a difficult and emotional one. And although the results of the process almost always provide a high degree of confidence about retirement planning and goal achievement, a large segment of pre-retirees simply haven’t bothered.

A recent study by the Society of Actuaries (how’s that for a place to take the kid’s on a Sunday afternoon) concluded in a recent survey that nearly half of baby boomers have no financial plans in place in case they live longer than expected.

So what accounts for this gap?

One reason could be the cost of financial planning. With many advisors charging between $1,000 and $3,000 to put together a comprehensive financial plan, it can be cost-prohibitive, although the cost of planning often pays for itself in the first year alone, in a variety of ways.

Another issue is the negative past experiences people have had with financial service providers. This typically has to do with high commissions sales reps, or with brokers who steered their clients into bad investments and never communicated effectively with them about their goals.

A third possibility is the fact that many people have not taken the time to explore their most important goals, many of which are directly connected to their savings and income.

Finally, I suspect that plain old procrastination is the primary culprit. Frequently a new engagement begins with the client telling me just how long financial planning has been on “the back burner” for them. Money can be a confusing, complicated and emotionally-charged subject, and for many it is easy to simply not face it. (“If I don’t go to the doctor, I won’t know what ails me.”)

In any of these cases, finding the right financial planner to work with and communicating clearly about what you want out of the process can go a long way toward helping you achieve your most important financial and life goals. Indeed, it is the number one responsibility of financial advisors to help their clients discover what these goals are.

My experience has been that once people are aware of their financial goals they become very interested in them, and once that happens, they are no longer resistant toward planning for their ultimate fruition .

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