Filed under: Investing
It’s with some trepidation that I suggest you make these five investing resolutions for 2015. I am well aware of the data indicating that only 8 percent of Americans successfully achieve their New Year’s resolutions. Even more disturbingly, 45 percent fail by the end of January. However, there’s still hope.
According to columnist Andrea Rains Waggener, an author of books and articles about teaching people how to create their best life, you are more likely to keep resolutions if you understand the goal, why change is needed, and if the impetus for that change comes from you rather than being imposed by others. The investing resolutions I am recommending meet these criteria.
- First, you desperately need to change the way you invest. The majority of you are not capturing market returns, which are yours for the taking.
- Second, the need to implement these resolutions could not be more apparent. If you want to achieve your goal of retiring at all, much less with dignity, making these changes will be a significant step in the right direction.
- Third, the motivation for these changes must come from you. No one can force you to adopt them. However, if you understand the data, the wisdom of doing so will follow.
With that in mind, here are my five easy-to-implement investing resolutions for 2015:
1. Dump Your Broker
With rare exceptions, brokers engage in stock picking, market timing and efforts to select the next “hot” fund manager. The data is overwhelming that these attempts to “beat the market” represent a failed and thoroughly discredited investment strategy. By some estimates, stock investors earned annualized returns 4.5 percentage points below the 12 percent annual return of the S&P 500 index (^GPSC) over the 20-year period from January 1993 through December 2012.
2. Understand the Numbers
I know most people’s eyes glaze over when they have to focus on numbers. Here’s all you really need to know. Assume you started with a broker 20 years ago. You invested $100,000 and achieved the returns of the average investor, which were 7.5 percent annualized. At the end of the 20-year period, your nest egg had grown to $424,785.
What if, instead of using a broker, you simply purchased an index fund that tracked the S&P 500? Your annualized return would have been 12 percent, and your nest egg would have grown to $964,629 (from which you would have to deduct the low management fees of the index fund).
The difference — $539,844 — could well be the deciding factor between running out of money in your “golden years” and enjoying the retirement you and your loved ones deserve.
3. Ignore Predictions and Pundits
Dennis Gartman is probably no worse than most of the pundits who so frequently appear in the financial media. However, his track record in 2014 was shockingly bad. If you followed his advice, you exited stocks while they continued to rise, you bought gold before it declined, and you adjusted your portfolio in anticipation of a bear market that never arrived.
The reality is that no one has the expertise to predict the direction of the markets. The genius of Wall Street lies in its ability to dress up luck and peddle it as skill.
4. Recognize that Financial Media Is Often an Industry Shill
Much of the financial media is a 24-hour infomercial for the securities industry. CNBC is a prime example. It injects a false sense of urgency among investors and encourages short-term thinking, panic selling and emotional trading. The good news is that many of you are getting the message and abandoning the network in droves. In 2014, CNBC posted its worst ratings since 1992 in the critical 25-54 age demographic.
5. Use Only Registered Investment Advisers
If you need assistance managing your investments or help with financial planning, consider limiting the pool of potential advisers to registered investment advisers. Every registered investment advieor is required to be a fiduciary to you and to place your interests above theirs and their employer. The securities trade association has fought tirelessly (and successfully) to prevent brokers from being held to the same standard. They operate under the suitability standard, which permits them to recommend products that, while technically “suitable,” may not be in your best interest.
Managing your money is serious business. You want to be able to rely on someone whose primary concern is, and will be, you.
I told you it would be easy! With modest effort, you can have all of these changes in place by the end of the month.
Daniel Solin is the director of investor advocacy for the BAM Alliance and a wealth adviser with Buckingham. He is a New York Times best-selling author of the Smartest series of books. His latest book is “The Smartest Sales Book You’ll Ever Read.”