We’re at the start of a new year in 2016. As such, it can be a good time for us to be setting resolutions for the year ahead. While some popular New Year resolutions are about losing a few extra inches from the waistline or picking up a new skill, I think that getting a handle on our finances is pretty important as well. Here’s a short list of New Year investing resolutions which I think can be useful for investors. Here they are. 1) Set realistic goals One of the keys to successful investing is to have a plan….
We’re at the start of a new year in 2016. As such, it can be a good time for us to be setting resolutions for the year ahead.
While some popular New Year resolutions are about losing a few extra inches from the waistline or picking up a new skill, I think that getting a handle on our finances is pretty important as well.
Here’s a short list of New Year investing resolutions which I think can be useful for investors. Here they are.
1) Set realistic goals
One of the keys to successful investing is to have a plan. Having realistic investment goals can go a long way to developing a plan that works for you.
For instance, if you’d like to achieve huge gains over the short run by wanting to jump in and out of stocks, do know that the odds of success are very much stacked against investors who try to time the markets. By being realistic about what does and does not work in investing, it can probably steer you in the right direction of achieving steady compounded returns over the long run.
2) Allocate capital wisely
As much as it can be exciting to pick big winners in the stock market, asset allocation (the act of determining what percentage of your portfolio should go into a certain financial asset) is very important as well.
What percentage of your portfolio should you have in cash? What kind of exposure to bonds and stocks should you have? And if you’d like to have some in stocks, should you just plow all your money into one or two high-conviction ideas or go the widely-diversified route? These are some crucial questions an investor can ask him or herself when it comes to asset allocation.
For more on asset allocation, we do have a guide at The Motley Fool Singapore which can be found here. An important excerpt from the guide is this:
“The bottom line is that when you need your money will partially dictate where you put it. What else determines your asset allocation? That favourite term among financial gurus: your tolerance for risk.”
3) Stick to your plan
I’ve seen many people set long-term investment goals, only to then succumb to the overwhelming urge to grab short-term profits.
Often, macroeconomic or geopolitical developments (some big headlines in these areas this year are China’s slowing economic growth, falling oil prices, and even terrorist attacks) are given as reasons by those investors for making short-term trades.
But what those investors miss is that there has hardly been a year in market history where there isn’t anything to worry about. And yet, stock markets have stepped up steadily over time. We can take Singapore’s market benchmark, the Straits Times Index (SGX: ^STI), as an example.
From the start of 1988 to the end of 2015, the index has grown at a compound annual rate of 4.6% in price; if dividends are factored into the equation, the index has likely gained more than 7% annually. In that nearly three-decade period since 1988, we’ve seen huge disasters such as the Asian Financial Crisis, the dotcom bubble, the 9/11 terrorist attacks, the SARS attack, and most recently, the Great Financial Crisis.
So, in 2016 and beyond, it may be a good thing for investors to start taking a long-term perspective when investing. It is important for investors to stay the course and not make investment decisions that are based on emotionally-driven reasons.
With that, I wish you a prosperous year ahead!
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.