If there was one thing that I could wish for investors this New Year it would be that we change the way we invest. A few years ago, Brad Steiman at Dimensional Fund Advisors (DFA) published a list of New Year’s resolutions that I have shared with clients ever since. Instead of following the herd, or believing that you can outsmart the Market, I want you to adopt these New Year’s Resolutions when investing this year and beyond:
• I will not confuse entertainment with advice. I will acknowledge that the financial media is in the entertainment business and their message can compromise my long-term focus and discipline — leading me to make poor investment decisions. If necessary I will turn off CNBC and turn on ESPN.
• I will stop searching for tomorrow's star money manager, as there are no gurus. Capitalism will be my guru because with capitalism, there is a positive expected return on capital, and it is there for the taking. And for me to succeed, someone else doesn't have to fail.
• I will not invest based on a forecast—whether it is mine or anyone else's. I will recognize that the urge to form an opinion will never go away, but I won't act on it because no one can repeatedly predict the future. It is, by definition, uncertain.
• I will keep a long-term perspective and appropriately consider my investment time horizon (i.e., how long my portfolio is to be invested) when determining my performance horizon (i.e., the time frame I use to evaluate results).
• I will continue to invest new capital and work my plan because it is time in the market—and not timing the market—that matters.
• I will adhere to my plan and continue to rebalance (i.e., systematically buying more of what hasn't done well recently) rather than "unbalance" (i.e., buying more of what's hot).
• I will not focus my portfolio in a few securities, or even a few asset classes, as diversification remains the closest thing to a free lunch.
• I will ensure my portfolio is appropriate for my goals and objectives while only taking risks worth taking.
• I will manage my emotions by learning about and acknowledging the biases and cognitive errors that influence my behavior.
• I will keep my cost of investing reasonable.
If you would like to learn how you can apply these important New Year’s resolutions in reaching your financial goals please call us. At Arista we want to wish you a Happy New Year! May this year of life bring you and your family health, happiness, and prosperity!
Scott Johnson , CFP®, CPFA, AIF® is an Investment Adviser Representative of Arista Wealth Management, LLC, a Registered Investment Adviser
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