A New Year with The Motley Fool

by Tom Gardner (TomGardner)

Twenty-two percent. That's how much the S&P 500 average has grown this year. If you're invested in mutual funds, chances are you haven't kept pace. While it should be the job of a mutual fund manager to beat (or at least match) the returns of the stock market, the vast majority simply don't. Last year, a staggering 88% failed to match the S&P 500 -- the most widely followed benchmark index for the stock market. As of this December, about 90% are losing to the S&P. Eeeek! With returns like that, why would you pay a professional to manage your money?

You shouldn't. You can do much better investing for yourself. With 1999 just around the bend, here are five simple financial resolutions that can dramatically improve your returns in the coming year.

1. Make It a Bad Year for Your Lender.

High interest-rate credit is the scourge of consumer finances in America. Ugly is much too pretty a word for it. Heading into 1999, the average interest rate on credit cards is approaching 19%, even as the major money-center banks have set the prime rate at a five-year low, around 7 �%. Clearly, if you're sitting on unpaid loans carrying interest payments above 9% per year, you should resolve to pay them off aggressively in 1999.

2. Win By Being Average.

Twenty-five years from now, our social security system will likely be a tired and sorry imitation of its present self. Retirement planning is now another individual responsibility, which places increased emphasis on those 401(k) plans at work. One glaring absence in many 401(k) plans today -- because it doesn't make investment bankers much money -- is the S&P 500 index fund, costing 90% less than the average stock fund while beating 80% of them over the past twenty years. The index fund is the only mutual fund The Motley Fool loves. Make sure that your 401(k) plan administrator includes index funds as an option.

3. Cut Out the Middleman.

Even in this fourth straight year of above-average stock market returns, it's likely that many Americans barely beat inflation with their investments. Why? Because mutual funds are eating up our returns with expense ratios, hidden 12b-1 fees, every-which-way loads, and underperformance. Whether you're buying mutual funds or stocks, using a full-service or discount broker, surfing the Web or paying $250 per year for a financial newsletter, make 1999 the year that you do some cost cutting in your investment plan.

4. Put Your Money Where Your Money Is.

The first, and often the worst, investment that many of us make is the penny stock with a "big future" that a broker tossed at us -- say a company that has a "can't-miss" opportunity installing integrated sewer systems in the Amazon basin. Run, don't walk, the other way. This year, make a few investments in companies whose products and services you know and love. Do you drink Coca-Cola? Shave with a Gillette razor? Wear Gap clothes? Why not own the company?

5. Make Junior a Millionaire.

Compound interest was Einstein's miracle; it should be yours as well. A 10-year-old investor who starts with $100, adds $100 of new money each year, and earns 12% annual growth on those investments will have over $265,000 in fifty years. In another ten years, it will have grown to more than $830,000. There are plenty of great companies for young people to invest in, from Hershey to America Online to Abercrombie & Fitch. Get your grandkids, kids, nieces and nephews started investing in stock today. Make yourself their most cherished ancestor.

Resolve to make your money work for you, not your broker, this year. Happy New Year and, as always, invest Foolishly!