New Year’s resolutions are an annual ritual for many, and among the most common are health resolutions. In the spirit of the season, investors should consider making (and sticking to) 2023 New Year’s investment resolutions to lead a healthy investment life more.
The following decisions can reduce stress and improve investment performance:
“Movement bias” is a common practice among investors who closely follow the day-to-day (or minute-to-minute) movements of the market. Many investors will benefit from finding a healthy balance between good knowledge and motivation of market information.
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Investors who struggle to find this balance tend to trade more often than they should, leading to poor results and tax returns.
Consuming less news about business and politics can be a good solution for those who find themselves overwhelmed by the latest tweets, broadcasts and articles.
2. Spend less time in “Echo Chambers.”
Confirmation bias is the tendency to look for evidence that supports pre-existing beliefs and to interpret information in a way that supports one’s position. The echo chamber (opens in a new tab) which comes from avoiding opposing views can lead to costly investment mistakes.
Finding opposing views is a necessary step in testing your investment outlook and making important (and potentially uncomfortable) decisions for 2023.
3. Take a good look at your portfolio.
The New Year is a logical time to evaluate your current investment holdings. Some recent winners may have benefited from a favorable market environment and may not be able to sustain their success. If the recent success does not last, it may be time to look for opportunities to improve holdings as investments with high prospects.
A similar analysis should be applied to less efficient locations. Assessing whether a lost position is likely to be recovered is an important aspect of portfolio management. Often, the latecomers are tomorrow’s leaders. But some investments that seem easy today can be even easier!
In a rapidly changing world, it is important to be vigilant about winning SY loss of investment.
4. Ask the right questions.
Investment discussions in January are dominated by forecasts for the coming year. The most common question is: “What do you expect the market to do this year?”
Although the natural impulse is to focus on a one-year perspective, for most investors a short-term focus is counterproductive. Investors should start the year with a budget and investment plan that takes into account known cash needs and an emergency fund for unexpected cash needs.
Aside from these immediate cash needs, the rest of the portfolio should be used to meet your financial and personal goals. The questions that may be asked relate the investment to the financial planning goals, focusing on long-term goals.
In fact, when the need for money is taken care of, most investors have a time horizon measured in years, if not decades.
An unreliable one-year investment “crystal ball” becomes more reliable over the long term, making investment planning a less stressful exercise.
5. Read Books.
The last resolution suggested to start the year is: Read a book! There are a number of books that offer great advice on how to become a smarter and more successful investor.
Daniel Kahneman (opens in a new tab) was awarded the Nobel Prize in 2002 for research that challenged the humanistic assumptions that dominate modern economic theory. that of Kahneman Thinking, fast and slow summarizes decades of research and explains the thinking processes that influence decision making.
Investor and Columbia Business School assistant professor Michael Mauboussin (opens in a new tab) has done important work on financial management and evaluation of investment success and failure. of Mauboussin The Success Equation: Unraveling Skill and Luck in Business, Sports, and Investing provides an understanding of the role of skill and luck in investment success and how to properly distinguish between the two.
Making a New Year’s investment resolution can increase your chances of long-term investment success. Staying on track with a resolution is easier said than done.
The likelihood of staying on track is higher for those who hold themselves accountable for their decisions, so it can be helpful to put your decisions in writing and keep them in mind. ‘the visual space as a constant reminder.
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This article was written by and represents the opinion of our contributing advisors, not the Kiplinger editorial staff. You can see the SEC rate in the chart if you are close to the selected date (opens in a new tab) or with FINRA (opens in a new tab).
