Key aims should be to save more, become better at handling inevitable market volatility, overcome investment inertia, reduce your debt and make sure you are following the fundamentals of sound investment practice.
Here are six New Year resolutions and strategies to think about:
Become a more disciplined, volatility-resilient investor: The higher share market volatility marking the final few months of last year and the beginning of 2019, highlights once again why investors should develop strategies to cope with volatility.
Block out market “noise”. Make sure you don’t overreact to daily market commentary and news, ignore short-term fluctuations in share prices and don’t get distracted by the rollercoaster emotions of the investment “herd”. Critically, set and adhere to an appropriately diversified asset allocation for your long-term portfolio – and monitor regularly particularly if your circumstances change.
And don’t try to time the market by attempting to pick the best times to buy or sell shares – typically market-timers sell after prices have fallen only to buy back after prices have risen.
When share prices sharply fall, investors often feel a hard-to-resist urge to do something when the best course is often to do nothing.
Increase your super contributions: Are you making the highest salary-sacrificed and tax-deductible contributions that you can afford? If not, consider increasing contributions from the beginning of 2019. The concessional (before-tax) contributions cap for all eligible super fund members is $25,000. Increasing your super contributions is a great beginning to breaking through the investment inertia that often gets in the way of investment success. (Concessional contributions are compulsory, salary-sacrificed and personally-deductible contributions.)
Cut your investment costs: This is one of the most straightforward ways to improve your chances of investment success in 2019 and beyond. Every dollar less paid in investment costs, including investment management fees, is a dollar more to invest.
Cut your debt: With Australia’s household debt at a record high, most of us have a powerful motivation to reduce our debts. In short, the more you are spending on paying back personal debt and on loan interest, the less you have left to invest and reach other goals such as eventually owning a debt-free home.
Control your credit card: A fundamental way to reduce debt in 2019 is to keep your credit card under tighter control. Aim to pay off your total credit card bill each month to avoid any interest and think about reducing your card’s credit limit. The typical Christmas splurge on credit provides an extra incentive to rein in credit card debt from early in in 2019. And consider the increasingly-popular alternative of having a debit card instead of a credit card. With a debit card, you can spend only your own money.
Boost your mortgage buffer: By making higher repayments on your home loan than required, you can build a mortgage buffer to help handle possible future financial setbacks and rate rises. And a mortgage buffer may enable you to pay off your home sooner. The Reserve Bank has noted in the past that many mortgagees have taken advantage of low interest rates to build their mortgage buffers.
Be sure you are not being unrealistically ambitious with your resolutions, and not setting yourself up to fall short.
Have a prosperous New Year.
Vanguard Investments Pty Ltd
15 January 2019