Most of us approach the new year with excitement but also with trepidation, since we carry with us a long list of resolutions. Let’s cut these down to the “Big 3”:
Wills. (Not Kate’s Will, the other one.)
Half of Canadians don’t have wills. Among the rest, many are out-of-date. It’s a dreary process, to be sure. Drafting and updating wills can be complicated and fairly expensive. And, after all that, then we have to have “the talk”, to let family members know what are wishes are after we go into the great blue yonder. Warren Buffett observed that it’s crazy that our family sees our will for the first time only after we’re gone since we’re not in any shape to answer any questions they may have. (Of course, maybe that’s the idea.)
Of the three financial resolutions, this one is the least fun but probably the most important.
Spread the Wealth: Asset Allocation
Experienced investors know that the most important investment decision is asset allocation which has a strong influence on our long-term returns. There’s always a lot of chatter about the next hot stock but we are far better off focusing on the big picture: making sure the mix of assets: stocks/bonds/cash, matches our objectives.
The start of a new year is the perfect time to set up a basic spreadsheet, (or just use a pen and paper, that works too!), that brings together all of our investments to get a snapshot of our overall portfolio. Many of us end up having considerable home country bias – investing too much in our home country and not diversifying enough geographically. Another key tendency is to put off rebalancing because it involves selling assets that have performed well. Well, that’s the point: to sell high and buy low! Rebalancing our portfolio makes us sell our best-performing assets and buy more of the worst performers to bring our percentages back to our original targets. Making sure our portfolio is in balance sets us up for a successful year of investing in 2018 and beyond.
You’ll notice that none of these resolutions deals with work or careers. We don’t need reminders to go to work each day, but we may need a reminder to get active. Once we approach and pass 50, many of us have to work harder to stay fit, but the payoff is well worth it. Luckily, it has never been easier or more fun to track our fitness and health goals.
And…what does this have to do with reaching our financial goals? There is a wealth of research that confirms the beneficial effects of regular exercise, not only on our physical fitness but on our cognitive fitness as well. Keeping fit improves our mental outlook (we’re more cheerful) and it helps our brains to function better (we make better decisions), both of which contribute to our financial well-being. So, get active, even if you’re a passive investor.