New Year's is here and it's time to start fresh and make some resolutions. Mitch Tuchman, managing director of Rebalance IRA, has seven retirement resolutions you can share with your clients.
1. Rebalance when your allocations are off target, not by the calendar
A lot of folks believe that rebalancing should be a once or twice yearly exercise, so they pick easy-to-remember dates, like birthdays or the end of the year, and then forget about it until then.
Unfortunately, your portfolio could be severely disbalanced at moments in between and you wouldn't know it. Thus, you miss a chance to sell gains, buy investments that have declined, or both. The better strategy is to rebalance when your portfolio strays out of range by certain percentages, say, 5% too high or too low.
2. Make sure you get your company match if you have a 401(k) through your work
An alarming number of Americans save too little. The typical 401(k) participate tries to get the corporate match and maybe a bit more. But that's the average, so the implication is that large numbers of people fail to do even enough to pick up free money from their employer. Don't miss this one.
3. Don't get emotional and deviate from your portfolio strategy when the stock market takes big swings one way or another
Have your mix of stocks and bonds set? Great, now stick to it and rebalance back to that mix when it's prudent to do so. Otherwise, you run the risk of chasing performance, a surefire way to lose big. That hot stock or sector will eventually cool. If you keep adding to it over time, you won't sell off fast enough when the markets turn, thereby locking in permanent losses.
4. Avoid financial cable TV
It's entertainment, plain and simple. Nothing you hear on television is by any means valuable to you and your investment planning. First of all, millions of other people just heard the same "hot tip" you just heard. Second, the motives of the people on TV sharing these ideas are suspect at best. They are not your advisor and have no legal requirement to shoot straight.
You can't gorge on potato chips and call it a balanced diet, nor can you invest based on TV punditry and call it financial advising.
5. Set short-term and long-term goals
It's crucial to set a long-term goal, such as "I will retire at 65 with $1 million." Just as important, it's crucial to plan the steps that get you there. Automatic investing from your paycheck is one way. So is setting quarterly and annual financial goals. You simply can't get where you're going without measuring progress along the way.
6. End credit card debts ASAP
Compounding is a powerful financial force. Money you save and invest grows dramatically in time, building into real wealth. Likewise, the longer you carry debts, the more they cost. Credit cards work the same way, but on steroids. Pay them off and cut them up if you have to.
7. Look on the bright side
The beautiful thing about making and keeping financial resolutions is that being debt-free and watching your savings and investments grow is an empowering feeling. It frees you up to make other choices in life and to live and experience things with far less stress.