While its a great instinct to want to improve your financial health, there are good and bad ways to do it. Here are five resolutions that should set off warnings:
- I’m going to double my risk because stocks have been doing so well — Managing your portfolio is very different than a weekend trip to Vegas. If you are comfortable with your asset allocation, suddenly deciding now is the time to pump up your share of risky assets is a potential landmine. Say the stock market craters a month after you have upped your stock holdings how are you going to react? If you are not certain you will be able to stay in for the long haul, you are potentially making a classic, wealth-destroying, buy high, sell low move.
- I’m going to take every possible advantage of low interest rates — low interest rates are great for consumers, unless they encourage you to buy more than you need. The cheapest car payment is not having one at all and the easiest way to keep your mortgage payment down is not buying more house than you need. If you start eyeing a new car, kitchen or other large purchase just because debt is comparatively low, hold yourself back. While a low interest rate can be enticing, whatever you borrow still has to be paid back. Borrowing too much can lead to an unmanageable amount of debt no matter how low the interest rates you secure.
- I’m going to surprise my spouse with a new financial strategy — the problem with surprising a partner is that most changes to family financial behavior require joint agreement. It may be a great decision to up retirement savings or cut spending, but will that impose an unconsidered burden on other family members? Perhaps your spouse can suggest a better way to implement the idea. Discussing the plan together can create the buy-in that is required for permanently improving your finances.
- I’m going to postpone rebalancing my investments because they’ve done so well — if you have kept your investments in just U.S. stocks the last few years, there’s a good chance they are up considerably as U.S. stocks have jumped ahead of international stocks. However, markets tend to work in cycles and so what does best one year often does not work out as well the next. By rebalancing, you can more equally distribute your investments and risk and create a less concentrated portfolio.
- I’m going to finally accept that I’m never going to be good with money — there’s no reason anyone cant improve his or her financial acumen. Simply reading the business section of your favorite newspaper can teach you a lot. Having coffee with a financially savvy friend or financial advisor can also be very helpful. Remember there is never too dumb a question to ask. While you do not need to become a money expert, gaining more confidence with investment terms and ideas can help you identify when you require help and what you should ask.
Jonathan Bernstein is a Senior Research Analyst within Hefren-Tillotson’s investment advisory group. Jonathan is a graduate of Yale College, a Chartered Financial Analyst charter holder (CFA) and a CERTIFIED FINANCIAL PLANNER certificant.