Here’s some good news for investors. With a few straightforward New Year resolutions and strategies, they can become better investors and better managers of their personal finances.
Key aims should be to save more, become better at handling inevitable market volatility, overcome investment inertia, reduce your debt and make sure you are following the fundamentals of sound investment practice.
Here are seven New Year resolutions and strategies to think about:
Become a more disciplined, volatility-resilient investor: The higher share market volatility marking the final few months of last year and the beginning of 2019, highlights once again why investors should develop strategies to cope with volatility.
Block out market “noise”. Make sure you don’t overreact to daily market commentary and news, ignore short-term fluctuations in share prices and don’t get distracted by the rollercoaster emotions of the investment “herd”. Critically, set and adhere to an appropriately diversified asset allocation for your long-term portfolio – and monitor regularly particularly if your circumstances change.
And don’t try to time the market by attempting to pick the best times to buy or sell shares – typically market-timers sell after prices have fallen only to buy back after prices have risen.
When share prices sharply fall, investors often feel a hard-to-resist urge to do something when the best course is often to do nothing.
Increase your super contributions: Are you making the highest salary-sacrificed and tax-deductible contributions that you can afford? If not, consider increasing contributions from the beginning of 2019. The concessional (before-tax) contributions cap for all eligible super fund members is $25,000. Increasing your super contributions is a great beginning to breaking through the investment inertia that often gets in the way of investment success. (Concessional contributions are compulsory, salary-sacrificed and personally-deductible contributions.)
Reduce your taxes and investment fees: This is one of the most straightforward ways to improve your chances of investment success in 2019 and beyond. Every dollar less paid in taxes and investment costs, is a dollar more to invest.
Cut your debt: With Australia’s household debt at a record high, most of us have a powerful motivation to reduce our debts. In short, the more you are spending on paying back personal debt and on loan interest, the less you have left to invest and reach other goals such as eventually owning a debt-free home.
Control your credit card: A fundamental way to reduce debt in 2019 is to keep your credit card under tighter control. Aim to pay off your total credit card bill each month to avoid any interest and think about reducing your card’s credit limit. The typical Christmas splurge on credit provides an extra incentive to rein in credit card debt from early in in 2019. And consider the increasingly-popular alternative of having a debit card instead of a credit card. With a debit card, you can spend only your own money.
Boost your mortgage buffer: By making higher repayments on your home loan than required, you can build a mortgage buffer to help handle possible future financial setbacks and rate rises. And a mortgage buffer may enable you to pay off your home sooner. The Reserve Bank has noted in the past that many mortgages have taken advantage of low interest rates to build their mortgage buffers.
Talk to a fee based adviser: A new study from Perpetual has revealed that Australians are not doing nearly enough about their financial situation despite it being one of the top things they care about. The research report (entitled “What do you care about? “) found that 71 per cent of Australians cared about their financial situation, placing it third on the list of cares after family (89 per cent) and health (72 per cent). However, the research highlighted a disconnect between Australian’s values and what they are proactively doing about it.
The study found that less than a third of Australians had set personal goals for savings and only 21 per cent had a regular investment plan or invested unexpected funds. Australians cited time and work as obstacles preventing them from getting them to where they wanted to be financially.
The study urged Australians to evaluate their life goals and consider talking to an adviser to work out a plan for how they were going to reach these goals. A fee based, client centric adviser will take the time to understand what truly matters to you and can help you get on a faster track to achieving your life’s aspirations.
When it comes to New Year resolutions, be sure you are not being unrealistically ambitious to avoid the prospect of setting yourself up to fall short.
Best wishes for a prosperous New Year.
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