Now that 2011 is almost here, you may want to make some New Year’s resolutions. Planning to volunteer? Go to the gym more often? Learn a new language? All worthy ambitions, of course, but this year, why not add some financial resolutions as well?
Which resolutions should you make? Here are a few ideas to consider:
• Boost your retirement accounts. No matter how old you’ll be in 2011, one thing is certain — you’re a year closer to retirement than you were in 2010. And that’s why you’ll want to increase your contributions to your retirement accounts. If your salary is going up in 2011, boost the amount you defer for your 401(k) or other employer-sponsored retirement plan, such as a 403(b) plan (if you work for a school or other tax-exempt organization) or a 457(b) plan (if you work for a state or local government). With tax-deductible contributions, tax-deferred growth of earnings and several investment options, these types of plans are tremendous ways to save for retirement. And try to "max out" your traditional or Roth IRA, too.
• Look for opportunities. With the uncertainties in the economy and the volatility of the financial markets, many people decide to head to the investment "sidelines" for a while. Yet, this environment may actually be a good one for investors with patience, discipline and the ability to look beyond yesterday’s headlines. For one thing, many quality securities are now good values. Also, we’re still seeing low inflation and low interest rates — factors that may lead to greater economic demand and improved strength in the financial markets.
• Don’t over-react to market swings. Over the past few years, we’ve seen plenty of sudden, sharp swings in the financial markets, and you’re likely going to see more of them in 2011. Don’t over-react to either the "ups" or the "downs" of the market. Over-reacting leads to short-term thinking — and successful investors are the ones who can maintain a long-term perspective.
• Rebalance when necessary. At least once a year, review and rebalance your portfolio, as necessary, to make sure it still reflects your goals, risk tolerance and family situation, all of which can change over time.
• Reduce your debts. While the sluggish economy of the past couple of years has obviously been a cause of concern for everyone, we have seen one "silver lining" in that many people, concerned about over-spending, have shed some of their debt load. The less money you have to spend on your debts, the more you’ll have available to invest for your future, so do what you can to cut down on what you owe.
• Maintain adequate cash levels. As an investor, you’ve got at least two good reasons for maintaining enough cash in your portfolio. First, having adequate cash available means you’ll be ready to act quickly to take advantage of good investment opportunities. And second, by having a cash cushion, you won’t be forced to liquidate long-term investments to pay for short-term needs such as a major car repair, a new furnace, a big doctor’s bill, and so on.
By following these suggestions, you can position yourself to make progress toward your long-term goals in 2011 — and in all the New Years that follow.