Investment Resolutions For This (Or Any) Year

February 4, 2011

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.

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