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7 monetary resolutions that may increase your wealth for a lifetime


Every year at this time, the financial media is filled with lists of how to be a better investor.

That got me thinking: if these lists are so effective, why do we need a new set of them every year? Two answers come to mind at once. First, investors are moody and easily dissuaded by their emotions, convincing sales pitches, and of course the ups and downs of the markets. Second, many of the items on these lists are vague and don’t tell people what to do.

If I ignore this first problem, at least for now, I’m going to suggest seven steps you can take to actually make a difference.

First, let’s look at some general “rules” that aren’t really useful.

Starting with Warren Buffett, widely recognized as the best of the best investors of our time, we find this well-known recipe: “Rule # 1: Don’t lose money. Rule No. 2: Don’t forget rule No. 1. ”

Sounds good don’t you think? But what does it mean as a New Years resolution?

Unless your luck is incredibly good, the chances are that the stocks or funds you buy will lose value at some point. If you buy something for $ 50 a share and five minutes later the price is $ 49.75, have you broken that rule?

Well no. If that really meant Buffett’s advice, you could never buy anything.

So he has to say that you should never sell an investment at a loss. In other words, hold onto anything that is worth less than what you paid for it forever. Does that sound like a recipe for success? It is known that Buffett himself sells investments at a loss.

Read: Yes, It Is Possible To Save Too Much For Retirement

Therefore I have to give this “rule” a “D” rating for a successful investment. Yes, it is thought-provoking, but it doesn’t help.

I looked at a list of “Top 10 Investment Rules” by John Bogle. Many of them are good, but they aren’t actionable instructions telling you what to do.

For example: “Don’t fight the last war. What worked in the past is not a predictor of what will work in the future. “OK, but how is that useful? You can’t know what will work in the future, so you’ll have to steer a ship without a rudder.

Fortunately, Bogle’s list includes: “Stay on track. The secret to a successful investment isn’t forecast or stock selection. It’s about making a plan, sticking to it, eliminating unnecessary risks, and keeping your costs down. “

This is very good, but the key point is to make a plan. What should be in this plan? Will any old plan do the job?

Let’s turn to Bob Farrell, who was Merrill Lynch’s chief market analyst and senior investment advisor for 45 years. Its widespread rules for investors are insightful – but they don’t tell investors what to do. Three examples:

• Excesses in one direction lead to an opposite excess in the other direction.

• If all experts and forecasts agree, something else will happen.

• The public buys the most at the top and the least at the bottom.

However, if you are like most investors, probably 90%, you really want to know exactly what to do. Instructions, in other words.

You can always get instructions and recommendations from any broker. But what you really want are referrals that will achieve your goals, not Wall Street goals.

If your goals include higher long-term returns, less risk and more security, you’ve come to the right place.

1. Regularly save some of your money instead of spending it all. Start your serious savings sooner rather than later. If you can’t sock a lot, don’t let that stop you. If you can save (and invest) even $ 25 a week, that’s still $ 1,300 a year, $ 13,000 in 10 years. If you do this for 30 years, you will earn an average return of 10% and you have roughly $ 214,000. (And once you see the results, you’ll definitely find ways to add more than just $ 25 a week.)

2. Invest in hundreds or thousands in stocks through inexpensive index funds or ETFs in various asset classes. Make sure to include value stocks and small-cap stocks. Massive diversification reduces your risks. Indexing will almost certainly improve your ROI as opposed to active management. Including value stocks and small-cap stocks will most likely improve your long-term returns.

3. Pay attention to taxes. Invest in a 401 (k) or similar retirement account if you have one available. With a little luck, you may even be able to get funds from your employer. Maximize your IRA account usage and choose a Roth IRA for its long-term tax benefits.

4. Ignore your opinion and automatically put your investments on the averaging of the dollar cost. Don’t let greed or fear rule when you invest. Remember Bob Farrell: “The public buys the most upstairs and the least downstairs.”

5. When you’re saving on an employee plan like a 401 (k), make a retirement plan the backbone of your assignments. One simple step takes care of most of the things you should be doing. To increase your long-term return from this fund, allocate a portion of every contribution you make to an auxiliary fund such as a value fund, a small-cap blend fund, or a small-cap value fund.

6. Return to something that John Bogle and many others recommended: Stay on track. Don’t panic and don’t try to time the market.

7. When you’ve done these six things, focus on living your life instead of obsessing over your investments. Stop looking at the financial news, listen to your friends’ hot tips, and read the experts who claim (with no evidence as they say) you know what the future holds.

If you do these things successfully and consistently, I promise you that you will be among the most successful (and probably the least stressed) investors out there.

Happy New Year!

Investors can learn some important lessons from the year just ended as I discuss on my latest podcast.

Richard Buck contributed to this article.

Paul Merriman and Richard Buck are the authors of “We’re Talking About Millions! 12 easy ways to improve your retirement “

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