With 2014 rapidly coming to a close, the topic of New Years' resolutions is bound to come up soon.
We asked four of our analysts to share their investing New Years' resolution with us, and here is what they had to say.
Matt Frankel: In 2015, I'd like to do a better job of maxing out my retirement savings by taking full advantage of the options available to me. In the past, I have put too much of my income into traditional (taxable) brokerage accounts, but I'd like to change that.
For me, this means maxing out my IRA, to which I can contribute $5,500 throughout the year. Also, since I'm self-employed, this means contributing to my simplified employee pension, or SEP, account as well, which allows me to contribute up to 25% of what I earn, capped at $52,000.
While I may not quite max out the SEP account, my investing New Year's resolution is to max out my IRA and still make a substantial contribution to my SEP.
If you are employed, your resolution should definitely include increasing your contributions to your 401(k) plan, even beyond the amount your employer is willing to match. The IRS will allow up to $18,000 in elective deferrals into your employer's plan for the 2015 tax year, so crunch some numbers and see if you could afford to contribute a little more.
Not only will doing this decrease your taxable income, but it'll help you build up a retirement nest egg much faster.
Cheryl Swanson: "When a falling stock becomes a screaming buy because it cannot conceivably drop any further, try to buy it 30% less."
So said Al Rizzo in 1986, and I've made it my New Year's investing resolution. The resolution couldn't be more on target, at least right now. The New Year hasn't even kicked off, and the rout in the energy sector has plenty of stocks looking like screaming buys.
On the other hand, like most people, I have a hard time keeping my New Year's resolutions. Greater risk brings greater opportunity, and sometimes you just have to take a shot.
I guess the resolution comes down to: "Buy low." Or: "Don't try to catch a falling knife." It's exciting to buy a stock that is plunging, but any decline, speedy or not, should be evaluated objectively. That's what I'm going to focus on as the New Year plows forward. And so onward we go, and may we all find plenty of humor and kindness in 2015, and maybe even some excellent stock buys.
Leo Sun: My New Year's investing resolution is to reduce the number of stocks I sell each quarter. When I first started investing, I often sold stocks prematurely after a 15% gain, yet held onto losers after a 50% plunge. That's simple human nature -- I wanted to lock in my gains, yet I didn't want to realize my paper losses.
The problem is that with the deluge of daily financial headlines, many investors often confuse short-term trading strategies (volume, support, resistance, moving averages) with fundamental ones (P/E, P/S, P/B ratios). For mainstream investors, finding fundamentally sound stocks and simply holding them is generally smarter than following the advice of traders who make $1,000 on one trade but lose $2,000 on the next.
Looking back over my brokerage statements, I realized that I earned more in the years I made fewer trades. Instead of cashing out of fundamentally strong stock after a 15% gain, I simply added shares. Instead of reading day-to-day headlines, I read company earnings reports and growth forecasts. That simple strategy helped me log 40%-50% gains on several top stocks. Moreover, taxes became much easier to file because I had fewer transactions to record.
Therefore, I plan to add shares of stocks to take advantage of dollar-cost averaging, but I won't dump a stock unless the business starts to break down fundamentally over several quarters.
Dan Dzombak: My investing New Year's resolution is to start regularly looking at stocks outside of the U.S. stock market.
Globally, most investors are too concentrated in their home country's equities. Canadian investors often hold too many Canadian stocks, Australian investors may often hold too many Australian stocks, etc. This is called the "home country bias" and matters as chances are the best performing markets are frequently not in whatever your home country is.
For U.S. investors, the U.S. only makes up 20% of the world's GDP. That leaves 80% of the world. Many investors just invest in foreign stocks through ETFs which track foreign markets. For stock investors, you can get exposure to world markets through U.S. companies with large percentages of their revenue from foreign markets such as Philip Morris International or foreign companies trading on the U.S. stock market such as Vodafone. However, there are many opportunities to directly invest in companies outside of the U.S. in their home markets where you may be able to buy them at far lower values than found on the U.S. stock market.
For the enterprising investor, to directly invest abroad you need both a process and the ability to buy foreign stocks. Some of the best free stock screeners enable you to screen for stocks internationally, notably Google Finance. Also, Interactive Brokers, the best online brokerage, as well as a few others enable you to easily invest in foreign markets. With those two in place you are good to go for starting to invest abroad.