A 2021 survey from insurer MassMutual reports that 26% of Americans had planned on making a financial resolution in the new year. A smaller percentage will focus their financial resolutions on investing specifically.
If you’re in that second group, here are five investing resolutions to help you create a richer, happier future.
1. Document or define your process
Even if you’re not a stock picker, you can benefit from having a process. Make 2022 the year you define and document your investment process.
That process should be driven by your financial goals — say, retiring a millionaire, funding college tuition for your kids, or doubling your net worth in 10 years. The goal in turn shapes your time line, which influences your asset allocation.
Whether you fulfill your targeted allocation with stocks or funds, documenting how you select securities supports a consistent, objective approach. It’s also easier to evaluate and improve your process when you have it documented.
2. Automate
Automation makes investing a habit. It also removes emotion from your decision-making, naturally implements dollar-cost averaging, and encourages a long-term focus. All in, you’ll invest more through automation, improve your overall investing experience, and lower your risk.
3. Prepare for the worst
Terrible days in the stock market are more terrible when you’re unprepared. To get prepared, first make sure you have enough cash on hand for emergencies. Also, consider any major purchases you’re planning in the next five years.
Then, think through how you might respond to a crash. Having a plan in place before things go sour can prevent regrettable, spur-of-the-moment decisions.
Lastly, evaluate the risk in your portfolio. You should feel comfortable with its composition and holdings in any market cycle. If you’re not sure your holdings are resilient enough to survive a crash, you might want to make some changes.
4. Let go of expectations
Letting go of expectations could make you a better investor in 2022. Your expectations influence how you respond to what’s happening in your portfolio. If things play out differently than you expect, you’ll likely feel disappointed. Worse, you might feel anxious or incompetent.
Those feelings can affect your decision-making. You might want to get more aggressive to make up for falling short. Or, you might get ultra-conservative as a loss-aversion tactic. Neither extreme serves you well in the long term.
An expectation is essentially a made-up point of comparison. Drop the expectation and it’s easier to skip over the disappointment and other bad feelings. You can dive right into evaluating what, if anything, needs to happen with your portfolio, given current circumstances.
5. Keep learning
This year, sign up for an investing course, schedule time for self-study, or commit to reading two or more books by famous investors like Benjamin Graham and Ray Dalio. As you learn new concepts, look for ways to build them into your investment process.
A richer future
To be a better investor this year and beyond, focus on your process through all market cycles, work to keep your emotions in check, and keep on learning. Your efforts in these areas will pay dividends — figuratively and possibly literally, too.
