This article was first published in the National Post on January 2, 2021. It is being republished with permission.
by Tom Bradley
New Year’s resolutions feel good when you’re making them, but rarely have an impact on behaviour since they don’t tend to last beyond the first few days or weeks of the year.
Gyms are the poster child for this lack of staying power. Right after New Year’s, you need to fight for a machine or a place on the mat. It stays that way for a couple weeks and then the numbers start to steadily drop until, by February, everything is back to normal.
I’m not inclined to make resolutions, but I encourage investors to do so. Why the contradiction? Well, investment resolutions are different. One month at the gym and the next 11 on the couch amounts to no good, but if you put your head down and work on your investments in the first few weeks of 2021, you can set yourself up for months, perhaps years.
Look in the mirror
You’re the CEO of your portfolio. Whether you’re an experienced investor or raw rookie, the buck stops with you, so your 2021 resolutions should revolve around the high-level questions a CEO would ask:
Am I saving enough?
- What’s the purpose of the money: i.e., retirement, kitchen renovation, down payment?
- Is what I’m doing working?
- Am I ready for the next market dip, whenever it comes?
- And, a related question, what did I learn about myself from last year’s extreme volatility?
These questions should be answered with the utmost intellectual integrity. Don’t let yourself fall into the trap many investors do, which is to take credit when their stocks or funds are going up, and blame the market when they’re going the other way.
Your self-evaluation should include an assessment of your strengths and weaknesses. This will help with the next step of the process: assessing the people who work with you on your portfolio.
Review your employees
Last year was very revealing because it tested the mettle of everyone, including advisers, investment managers and discount brokers. This makes January 2021 a particularly good time to sit back and assess the investment professionals you work with.
Here are some questions you should think about:
How prompt and effective was the service?
- How transparent were they about long-term returns and fees?
- Was the investment advice timely and useful?
- Are their strengths your weaknesses?
- Do I trust them to put my interests first?
If the answers to these questions are unsatisfactory, then it’s time for a change. If you’re supposed to hear from your adviser regularly (and are paying fees for it,) but didn’t get a call in the first half of 2020, or the whole year for that matter, then you’ve got grounds for divorce.
Revisit your strategies
It’s tempting to dive into your individual holdings, but resist until you’ve confirmed that each of your investment buckets has an appropriate strategy.
I’m specifically speaking about asset mix. For example, there should be little or no equity exposure in the “kitchen renovation” bucket. On the other hand, the “winters in California when I retire” bucket should be mostly in equities.
The past year was a wild one and many investors scored big on tech, gold and health-care stocks, but that doesn’t negate the importance of having the right mix of asset types for each investment goal. Your passions and hunches still need to fit into an overall portfolio.
Automate your routine
One of your 2021 resolutions should be to automate as much of the process as possible. This is especially important if you’re a disinterested investor and your resolutions are likely to fall by the wayside.
I’m talking about things such as reinvesting dividends and fund distributions, and setting up pre-authorized contributions, or PACs, whereby your registered retirement savings plan (RRSP) and/or tax-free savings account contributions automatically come out of your bank account each month.
This routine takes the stress out of RRSP season, gets your money working sooner and, importantly, dials down the emotion that goes along with investing.
Perhaps the best automation tools you have are balanced funds that, in combination, align with your goals and risk tolerance.
If you act like a CEO for at least a few weeks and address the higher-level questions, then implement your strategy using an appropriate balanced fund(s), you’ll benefit long after the New Year’s glow wears off.
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