New Year’s resolutions are an annual ritual for many, with health-related resolutions being the most common. In the spirit of the season, investors should consider (and stick to) the 2023 New Year’s Investment Resolutions for a healthier investment life.
The following solutions may reduce stress and improve investment performance.
“Activity bias” is a common pattern of behavior among investors who closely track day-to-day (or minute-to-minute) activity in the market. Many investors would benefit from finding a healthier balance between being well-informed and being overstimulated by market news.
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Investors who struggle to find that balance often trade more frequently than recommended, negatively impacting their performance and tax results.
Consuming less business and political news may be a healthy solution for those who are addicted to the latest tweets, broadcasts, and articles.
2. Spend less time in the “echo chamber”.
confirmation bias The tendency to look for evidence that supports existing beliefs and to interpret information in ways that support existing positions.echo chamber (opens in new tab) The gains from avoiding conflicting perspectives can lead to costly investment mistakes.
Seeking opposing perspectives is a necessary step in testing investment perspectives and important (and perhaps uncomfortable) solutions for 2023.
3. Look at your portfolio objectively.
The New Year is a logical time to evaluate your current investment holdings. Some recent winners benefited from favorable market conditions and may not sustain their success. If recent success isn’t sustainable, it may be time to look for opportunities to upgrade your holdings to investments with better prospects.
The same analysis should be applied to less successful positions. Assessing whether a lost position can be recovered is an important aspect of portfolio management. Today’s laggards are often tomorrow’s leaders. But some investments that look cheap today could be much cheaper!
Vigilance to win is important in a fast-changing environment When lose investment assets.
4. Ask the right questions.
Investment discussions in January are centered on predictions for the coming year. The most common question is, “What do you think the market will do this year?”
A natural urge is to look at the one-year outlook, but for most investors, focusing on relatively short time horizons is counterproductive. Investors should start the year with budgets and investment allocations that allow for known cash needs and contingency reserves for unexpected cash needs.
Beyond these short-term cash needs, the rest of your portfolio should be invested in line with your long-term financial and personal goals. The right questions focus on long-term goals and integrate investments with financial planning goals.
Realistically, once the cash need is met, most investors have a time horizon measured in years, if not decades.
A “crystal ball” of unreliable one-year investment performance becomes more reliable in the long run, making investment planning less stressful.
5. Read a book.
Here are my final New Year’s resolutions: Let’s read a book. There are several books out there that offer good advice on how to build self-awareness and become an effective investor.
Daniel Kahneman (opens in new tab) He was awarded the Nobel Prize in 2002 for his findings that challenged assumptions of human rationality that permeate modern economic theory.kahnemans thinking, fast and slow It summarizes decades of research and explains the thought patterns that influence decision-making.
Investor and adjunct professor at Columbia Business School Michael Mauboussin (opens in new tab) I have done quite a bit of work on evaluating the success and failure of behavioral finance and investments.Mauboussin The Formula for Success: Untangling Skill and Luck in Business, Sports and Investing It provides insight into the role both skill and luck play in investment success and how to better distinguish between the two.
Making investment resolutions in the new year can increase your chances of long-term investment success. Getting the solution on track is easier said than done.
People who take responsibility for their decisions are more likely to stay on track. So it may be helpful to put your resolutions in writing and keep them in a visible place as a constant reminder.
Registration with the SEC should not be construed as an endorsement or indication of investment skill, acumen, or experience. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. Unless otherwise stated, references to particular securities or investments are hypothetical and illustrative only. Advisor clients may or may not own the securities described in the portfolio. Advisor does not represent that any of the securities discussed are or will be profitable.
This article was written by and represents the views of a contributing advisor, not Kiplinger’s editorial staff.Advisor records can be viewed with the SEC (opens in new tab) or at FINRA (opens in new tab).
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