If your New Year resolutions include managing your money better, here are three key investment strategies for 2015 that you can use to get your year started on the right track. As a savvy investor, you know that following timeless investing principles tends to work best over the long haul. Still, that doesn't change the reality that the available opportunities within those principles change regularly.
With the New Year come new limits on retirement plans and new financial priorities for based on getting one year older. Those new limits, the inevitable passage of time, and the clean slate that comes with a new year give you a great opportunity to review your financial situation to make course corrections along the way.
Your key investment strategies for 2015
1. Increase your retirement plan contributions. In 2015, the contribution limits for 401(k)-style plans have increased to $18,000 from $17,500 for those under age 50. Thanks to catch-up provisions, total contribution limits have also increased to $24,000 from $23,000 for those aged 50 or better. IRA limits remain at $5,500 for those below 50, and at $6,500 for those at or above 50, with the difference also driven by catch-up provisions.
Even if you aren't able max out your retirement plans, the New Year gives you a great and painless opportunity to increase your contributions. Every year, the tax brackets are indexed to inflation. What that means to you is that all else being equal, there's a very good chance your first paycheck in January 2015 will be larger than your last paycheck in December 2014 was. Make the adjustment now to deposit that extra cash into your 401(k), and you'll never miss it.
2. Revisit any automatic investments you may be making to assure they still make sense, and fix the ones that don't. One of the best parts of a typical 401(k) plan is the fact that it makes investing automatic. You sign up for the plan, pick the amount you're investing and where you want it to go, and then the money automatically gets invested per your instructions, every payday.
Dollar-cost averaging into a broad market index with every paycheck is a great way to build wealth over time. Doing it automatically helps you keep at it through the ups and downs of the market, thus improving your chances of long-run success.
The downside of that automatic investing strategy, however, is that things change. 401(k) plans change their offerings, investments that may have made sense in the past may not make sense now, and you as an investor change over time as your comfort level, asset base, and risk tolerance evolve. Checking in to review and adjust your automatic investments at the same time you're increasing your investing level is a great one-two punch that can knock out these two top strategies at the same time.
3. Adjust your asset allocation to your stage in life and priorities. The stock market has made a substantial run-up since its lows in early 2009 amid the financial crisis and is now well above the previous highs it reached in 2007. If you followed a straightforward dollar-cost averaging strategy, stayed invested in a broad market index throughout the crisis, and kept it up, two things are true today:
- You're six years older than you were in early 2009.
- You've probably recovered all your losses and then some.
That recovery in value plus the passage of time mean that right now, in early 2015, you have a great opportunity to reevaluate where you money is invested and why it's invested there. For instance, are you moving from the "accumulation" phase of your investing career to the "spend down" phase? Then now might be a great time to set up a bond ladder from some of that recovered value that will let you lock in actual cash to spend from maturing bonds, outside of the volatility risks in the stock market.
Be sure that you're making your allocation choices based on how much you'll need and when you'll need it, and not just on the fact that the market is up. In the near term, your educated guess is at least as good as mine as to what the stock market will do, but the stock market is still likely capable of being the long-run wealth builder it has been for generations.
Timeless strategies meet timely guidance
A strong investment plan will withstand the test of time and the ups and downs of the market. Still, the passing of time and the changing of the calendar year bring with them new opportunities to move that plan to its next level. These three key investment strategies for 2015 give you the tools you need to update your long-term plan around today's reality for you and your family.