Thursday, January 5, 2012

The 10 New Year's Investing Resolutions

By Larry Swedroe

The New Year is a time to reflect on the changes we want or need to make. The following are my recommendations for New Year's resolutions that will not only make you a better investor, but will also improve the quality of your life -- assuming you have the discipline to stick to them.

1. I'll adhere to my investment plan. If I don't have one, I'll immediately develop one.

2. I won't take more risk than I have the ability, willingness or need to take.

3. I will avoid all complex investments and won't invest in something if I don't fully understand its risks.

4. I'll ignore all market and economic forecasts, because they have no value.

5. I'll remember that just because something seems obvious now, it doesn't mean it was obvious before it happened.

6. I won't confuse strategy with outcome. If my plan doesn't return what I expected, that doesn't mean my strategy was wrong. Sometimes you win; sometimes you lose.

7. I won't react to current market trends. Instead, I'll remember rule No. 1.

8. I won't treat the unlikely as impossible, nor the likely as certain.

9. I'll take my risk in the stock market and use bonds to dampen my overall risk, if necessary. My bonds will be of the highest quality.

10. I won't confuse yield and return. If an investment has a high yield, there's a high degree of risk, even if I can't see it.

And here's a bonus resolution, which will not only help you, but probably provide some good laughs, too. I will keep a diary of my market and economic forecasts and review them at the end of the year. That will help me avoid the mistake of being overconfident of my skills.

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