Did you resolve to lose weight, stop smoking or act on
another life goal this year? Although it’s only a few weeks into 2017, many
people have already broken their New Year’s resolutions. Instead of new
resolutions, consider improving your habits, including your financial fitness.
Good financial habits are vital for achieving your goals. Five ways to improve
your habits are to: Automate, investigate, calibrate, allocate and participate.
And your financial advisor can help reinforce these good habits, which may make
a big difference in your financial future.
Automate - Since habits are regular routines, usually
triggered in specific situations, you can break some bad financial habits by
using automatic payments and other repeatable processes.
Pay yourself first by adding automatically to your
investments each month – systematic
investing can help take the emotion of market moves out of your
decisions, although it doesn’t guarantee a profit or protect against a loss.
Systematic investing allows you to invest a fixed dollar amount at regular
intervals.
Set automatic payments to pay your full credit card balance
monthly or at least pay more than the minimum amount.
Consider paying extra on your mortgage.
Make sure you spend less than you earn.
Investigate - Do you frequently react to financial advice
aimed at others or the general public? It can sound impressive or enticing, but
it may not be right for you. A better habit is to ask what will help you toward
your long-term financial goals. The amount of financial noise seems to be
exploding, so make sure you investigate to eliminate “fake news” and don’t
follow recommendations that aren’t designed for you.
Calibrate - While the S&P 500 and the Dow are useful
measures of how U.S. large-cap stocks are performing, they aren’t all you need
to know. That’s why a possibly harmful financial habit is checking your
portfolio’s performance against the S&P 500 or the Dow. Why? Because a
stock market index isn’t tailored to your situation or aligned with your goals.
It’s more volatile than you may want for your portfolio. And the more
frequently you check how you’re doing, the more likely you’ll be inclined to
make changes. Comparing your portfolio to a stock index is like comparing your
life to a celebrity’s - most of us don’t have the ups and the attention, but we
also don’t want the emotional swings that result.
Allocate - It’s easy to get in the habit of investing in
what’s familiar - especially stocks of large, well-known U.S. companies.
They’ve performed extremely well over the past few years; however, market
leaders rotate over time. Make it a habit to allocate money to asset classes
that have lagged recently, even though they may be less familiar. That way, you
can reallocate and help improve your portfolio’s diversification. Some
investments to consider are international developed-market and emerging-market
stocks, as well as investment-grade bonds. Remember, stock and bond prices
frequently move in opposite directions, so it’s key to combine them as the
foundation of your portfolio.
Participate - One of the most important financial habits is
to stay fully invested. It’s always tempting to hesitate, but that’s rarely a
successful strategy. And failure may be more likely if you try to make huge
changes or do it by yourself - but you’re not in this alone. Just like you’re
more motivated to keep exercising if you walk with friends, you’re more likely
to stick with good financial habits when you have your financial advisor to
help break down your big goals into practical actions and stay consistently by
your side along the way.
Take Action Today
Many of your best habits are automatic because you don’t
have to think about them. And good financial habits can become as ingrained as
brushing your teeth - but fortunately, your financial health can improve
without doing anything twice a day. Regular checkups with your financial advisor can help you stick with your
strategy and work toward your long-term financial goals.
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