By now you've made it and probably started to work on resolutions for 2012. Weight Watchers has been busy taking in new clients who are trying to fight the bulge, as have the health clubs trying to help those stay in better shape.
So, while it's not exactly an early start for the investment related resolutions below, I don't think it's ever too late to implement some or all of these in your financial life.
1. Balance, or should I say, rebalance? Last year, I started off with an article reviewing the importance of keeping your investment plan near an appropriate target allocation. There aren't many certainties in investing, but one which is time proven is that by using a diversified portfolio of different asset classes and rebalancing the portfolio periodically (one to four times a year is sufficient) to stay near the target allocation is proven to reduce risk and may actually increase your return over time.
Of course, the right allocation to target varies from investor to investor based on his/her investment objectives for return and risk control. Favoring a larger portion of your assets in less volatile asset classes such as bonds and cash, reduces risk during volatile markets, but may inhibit returns over time.
2. You can't predict the future, so don't try. We would all love to have a crystal ball that would help us predict the exact right moments to hop in and out of the market or individual investments, but the perfect tool does not exist. If you're honest with yourself and think back to the times when you were convinced a certain set of circumstances would result in a particular outcome, you will find that you were wrong a high percentage of the time. Don't worry, everyone is. It is simply not possible to predict a future outcome with certainty when so many things are changing in life every day, and most of the variables are way beyond our control and understanding.
Earthquakes, tsunamis, new leaders in potentially unstable countries and many other factors are all mind-twisters when trying to figure out how it will impact the value of your portfolio in the short-run, but few have any impact over more than a year or two.
The good news is that you don't need to be able to predict the twists and turns of the economy, politics, and the world's news flow on a short-term basis to succeed as an investor. Investment plans can employ many different types of discipline to succeed. The key is sticking to a time-proven process over enough time to allow it to work. Changing strategies every year is a fools game.
3. Be an optimistic pessimist. I've admitted in the past that I tend to be a bit too optimistic, but I think that it's not productive to be too negative either. History has shown that through all the ups and downs, it never stays too good for too long, nor does it usually stay very bad for very long. The Great Depression is the one notable exception. The conclusion I've come to in my own approach is to be a bit skeptical about the short run to avoid the impulses of greed, and asking what can go wrong with an individual investment decision rather than blindly assuming it will work out in my favor. In the long-run, however, being a pessimist is self-defeating and has never worked out to be the best strategy, as asset prices have moved higher over time for virtually all asset classes.
Good luck in 2012, and good investing!
Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.