The new year is just around the corner and that means people are going to be making resolutions for the new year. Are you going to make any resolutions that have to do with your finances? What can you do to make better financial decisions in 2017? Check out the top 3 investing resolutions to make for the new year.
1- Lower your investment cost
Everyone knows that if you pay less for something then you’re going to keep more in your pocket. You know the quote, “a dollar saved is a dollar earned”. Even my economics and finance teachers in college were talking about spending less to earn more in class. That’s actually one of the facts that stuck with me the most. So it should come as no surprise that you should also be looking to lower your investment cost.
How do you lower your investment cost though? It’s not like you can just negotiate a better price or find a different option right? As it happens, you can do exactly that. You can start be negotiating fees with your broker. Are you paying 2% in fees? That’s way too high. You need to find another broker if you ask me. At the least you should try to lower your fees to under 1.5%. The closer you can get to 1% the better.
What if you’re not using a broker and you’re doing the investments yourself? Well, depending on where you invest your money you’re still going to have to pay fees somewhere. If you’re doing stocks you might have to pay $5 per trade or you might have to pay $40 per trade. What would you rather pay?
It even holds true for mutual funds. Just because the fund has a higher fee doesn’t mean it’s going to perform better. Actually, many times it’s quite the opposite. Do yourself a favor and lower your costs wherever you can. Don’t be shy about asking questions. If you don’t know what to look for then start by asking the question “what fees am I paying”. No matter where you’re investing you should be able to get a straight answer. You have a right to know what fees you’re paying, and you should try your best to lower them wherever possible.
2- Increase your contributions
There’s really nothing better you can do for yourself other than increasing how much you save. The more you save now the more you’ll have in the future for retirement. That’s the whole point of inventing right? Saving for your future.
It may seem simple, but you need to give yourself a raise this year. Increasing your contribution this year will do just that. It might not be what you wanted to hear, but it’s really the best thing to do. We can debate all day over which fund you should invest in, but in the end nothing matter more than saving more money.
Are you taking advantage of your 401K employer match? Do you have an IRA, a ROTH IRA, or an HSA? If you don’t have any of these things you should start asking questions to figure out if you need them or not. You probably do.
The goal might be to eventually max out your contributions so that you’re saving the most you’re aloud to save each year into these accounts. You don’t have to do it all at once though. Most people can’t afford to do that anyways. But what you can do is raise your contribution at least 1% this year. If you can raise it at least 1% every year you’ll still be doing great.
3- Rebalance your investments
Each year you should reevaluate your investments and move money around as necessary to “balance” your investments. Rebalancing might be necessary because of a huge run up in a certain stock where it has you too weighed in just one company. Or it could be that an industry sector of stocks that you own have run up so high that you’re heavily weighted in that area. It could also be that you’re getting older and your risk management needs to change accordingly.
Whatever the reason is behind the need to rebalance you need to evaluate and do it every year. Then you can decide what you want to do to rebalance things and get them back in line with your financial plan. You might decide you want to keep things the way they are if they turn out to be more aggressive and you’re ok with that.
You might decide you want to sell out of something that has gone up and then spreading that money around to some other investments that haven’t gone up as much. You can also put more money into the investments that haven’t performed as well to get things back in balance. Whatever you decide to do you should make yourself a promise to look over your investments and do this each year.
That’s all there is to it. Lower costs, invest more, and rebalance. Rinse, repeat, and retire.