Financial Focus: Make Your New Year's Financial Resolutions
Make Your New Year's Financial Resolutions
If you're like many people, you've made some New Year's resolutions. Perhaps you've vowed to go the gym more often, or learn a new language or reconnect with long-lost friends. All these are worthy goals, of course, but at the same time, you don't want to neglect one of the most important areas of your life - your finances. So this year, why not make some financial resolutions?
Here are a few to consider:
* Stay calm. As you're well aware, 2008 was not exactly a stellar year for the stock market. What will 2009 bring? No one can say for sure, but it seems likely that we are in for some volatility in the months ahead as we slog our way through the recession. As an investor, your best move is to stay calm and remain focused on your long-term goals. Review your financial strategy to make sure it's still appropriate for your risk tolerance, family situation and time horizon.
* Increase your 401(k) contributions. Even though you might not have enjoyed looking at your 401(k) statements during 2008, it's still a good idea to boost your contributions for 2009. Why? For one thing, you typically invest pre-tax dollars in your 401(k), so the more you put in, the lower your annual taxable income. And your earnings grow on a tax-deferred basis, which means your money can grow faster than it would if placed in an account on which you paid taxes every year. Furthermore, you can adjust your investment mix to reflect changes in your risk tolerance and your proximity to retirement.
* Build an emergency fund. It's a good idea to build an emergency fund containing six to 12 months' worth of living expenses, held in a liquid account. If you face an unexpected expense - such as a major medical bill or a costly car repair - you don't want to be forced into cashing out any stocks, especially if their price happens to be down.
* Diversify, diversify, diversify. In 2008, we witnessed something that's unusual, though not unheard of: a bad year for stocks and bonds. In the past, it has more often been the case that when stocks are up, bonds are down, and vice versa. That's why diversification makes so much sense: By spreading your dollars among an array of stocks, bonds, government securities, certificates of deposit and other investments, you can help reduce the impact of a downturn that primarily affects just one type of asset. Of course, diversification, by itself, cannot guarantee a profit or protect against a loss, but if you aren't diversified at all, you are inviting significant risk into your investment portfolio.
* Stick with quality. During turbulent times, quality investments are your best bet for "weathering the storm." If you're buying stocks, look for those companies that have long track records of profitability, strong management teams, competitive products and solid business plans. If you're considering bonds, find the ones that have received the highest ratings from the independent rating agencies.
Finally, be patient, disciplined and forward-looking. The investment world has taken some knocks lately, but good investment opportunities are still out there.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.