The new year is right around the corner, so now is the perfect time to consider this past year's successes and failures and determine what profit-friendly actions should be taken in 2015. In that vein, here are three resolutions investors might consider keeping in the coming year.
1. Learn more
Few things can have a more life-altering effect on our future than our investments, yet far too many people fail to spend more than a few minutes a year considering their investment picks. According to a February 2014 poll by TIAA-CREF, more of those surveyed had spent two hours choosing a flat-screen television in the preceding year than had spent two hours planning an IRA investment for their retirement (21% vs. 15%).
This suggests that many investors might be short-changing their financial future by failing to educate themselves on investment choices and options. In the past, retirees could rely on pensions to support them in their golden years, but that's no longer the case. In the future, retirees' income will come from some mixture of Social Security and retirement savings. As a result, adults should be more focused on educating themselves about investing than their parents had to be.
Fortunately, there are plenty of resources available to help people make better investment decisions. Local universities and community colleges offer courses on money and investing, online services deliver access to companies' detailed financial information and ratios, corporate websites provide links to downloadable investor presentations, and the government offers publications designed to help new investors learn to make better financial decisions.
2. Take more deep breaths
Investing is a marathon, not a sprint, yet investors tend to view the market's inevitable pops-and-drops through short-term lenses. By focusing excessive attention on the market's hottest stocks, investors too often take on too much risk in their portfolios. By worrying inordinately over the market's unavoidable tumbles, investors tend to sell too quickly and miss great buying opportunities.
Instead of reacting to the market's machinations this coming year, investors could be better rewarded by taking a few more deep breaths than they did in 2014. Instead of chasing unproven and unprofitable companies such as medical marijuana stocks, consider drugmakers with demonstrated and profit-friendly management teams, products, and pipelines. Similarly, instead of ditching companies with game-changing products when they turn lower, consider their long-haul opportunity and exercise a bit more patience. After all, investors who sold Amazon.com, Netflix, and Apple during the Great Recession surely regret it today.
3. Become more committed
It has been proven time and time again that investing for the long term outperforms short-term investing and that dividend-paying stocks outperform their nondividend-paying counterparts. It has also been shown that committing to larger investments when you're younger and setting up dollar-cost-averaging programs that automatically invest at specific intervals, such as monthly, can help investors build up more money over time.
If a 25-year-old investor invests $1,000 up front and $100 a month at a hypothetical 6.5% annual return, that investor would have a portfolio worth $241,731 at age 65. However, by investing $2,000 up front and committing to $200 a month at a hypothetical 6.5% annual return instead, the investor's portfolio would be worth $483,463. Spending a bit less today and investing that money instead can have a massive impact on an investor's financial future.
Sticking to it
Every year, millions of people make resolutions that they fail to keep. Many of those resolutions offer benefits that are seemingly intangible today, but that could make a big difference in the future. Resolving to learn more about investing, focus patiently on the long term, and invest more for retirement might not show benefits immediately, but they could make a huge impact down the road. If so, then sticking to these resolutions just might prove to be the best resolution investors can make this year.