It’s been another good year for investing, but only if you’ve been doing it right. U.S. stocks are up 14 percent this year as of Dec. 26, on top of a 33.5 percent gain last year, as measured by the Vanguard Total Stock Index Fund ETF (VTI). If you want to do it right in 2015, and maximize the chances of growing your wealth, now is the perfect time to make some New Year’s resolutions. Repeat after me....
I will stop making Wall Street rich. High fees are highly correlated with lower returns. Roughly a third of all funds in U.S. stocks are now in index funds with fees as low as 0.04 percent in annual expense ratios. Your mantra: “I worked hard to build up
my nest egg and no one has a right to get rich from my portfolio.”
I will ignore the experts. I will not invest based on any advice from so-called experts, whether from sensational media headlines or sophisticated economists. Nearly every economist predicted rising rates this year and recommended against owning anything but short-term bonds. Not only were they dead wrong; they have a long track record of misforecasting the direction of interest rates. Say to yourself: “I understand and accept that no one knows the future of markets and investing based on the experts is merely following the herd, which typically doesn’t end well.”
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I will buy low and sell high. The only thing predictable about the stock market is the behavior of investors, which is that they will get greedy and buy high after a surge, and become fearful and freak out and sell after a plunge. Heed the Oracle of Omaha: “I will listen to Warren Buffett when he says be fearful when others are greedy, and be greedy when others are fearful. I will set my asset allocation today when the market is near an all-time high, and be conservative enough so that I will have the courage to buy enough stocks after a plunge to get back to that asset allocation.”
I will use common sense. I acknowledge that common sense isn’t all that common when it comes to investing. I understand that strangers don’t really call me to make me rich. I know that if someone really knew how to beat the market, they would be billionaires rather than peddling their products through telemarketing. I accept that there is no way to earn high returns with low risk.
You may want to print this out and put it on the fridge where you can see it daily or at least keep it handy enough to pull out the next time markets plunge. You may even want to sign this page with a statement that you will follow these resolutions in 2015 and beyond.
Here’s wishing you a happy, healthy and wealthy 2015!
Also of Interest
- 3 Lessons from a Stock Market 'Freak Out'
- Most Tax-Friendly U.S. States
- Fight Fraud and ID Theft With the AARP Fraud Watch Network
- Join AARP: savings, resources and news for your well-being
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