With the weather turning cold in many parts of the country, snow recently dropping across the East Coast, and holiday shopping well under way, the signs are here that the new year is almost upon us. Many people undoubtedly can't wait to turn the page on their calendars to start fresh in 2021. After all, with the pandemic, the recession, and social distancing restrictions, this has been a challenging year.
With just a couple of weeks before 2021 starts, it is a good time to start making New Year's resolutions for your finances and portfolio to make next year better than this one.
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1. Create goals
When it comes to investing, the place to start is to create goals. These are obviously different for each person, but the key is to know what you want. You may even wish to break these down into short-term and long-term objectives. For instance, you may wish to save enough money to take your dream vacation or a down payment on a house in the next year. A goal for further in the future could include funding your children's college education.
The first step is figuring out what you want, and then you can make a plan to achieve it. You should also check your progress throughout the year to see whether you are on target or if you need to tweak things.
2. Set your investment path
Once you have set your goals, another resolution I suggest is figuring out what types of investments you want. Are you looking for slower-growth, high-dividend-paying companies? There are a number of these stocks, such as Kimberly-Clark, which has raised its dividend for 48 straight years, or Colgate-Palmolive, which has a string of 57 years of increases.
Or are you looking for faster-growth companies that offer more upside but currently don't pay dividends?
The key is for your investments to match your risk tolerance and tie into your goals. For your short-term goals, you can invest in safer alternatives, while you may wish to invest in equities for your longer-term goals, since you can withstand the market's ups and downs better.
It doesn't have to tilt in one direction, either. You can take part of your money that you have devoted to equities and invest in both dividend-paying stocks and faster-growing companies.
3. Get started
You don't need a large amount to get going, either. So, don't let that hold you back. Contribute what you can and then you can add to it over time. One strategy is to use dollar-cost averaging to invest the same amount regularly.
The figure and time interval is up to you. But the key is to get moving and not let a lack of funds hold you back.
4. Review your investments
It is also wise to set aside time to regularly review your investments. Every six months or year should suffice. When you are going over your investments, you can see what's happening and decide whether you want to keep them in your portfolio or sell it.
Unfortunately, many people put more work into deciding whether to invest and skip this step. But this will help your investments stay on track.
5. Contribute to your retirement plan
If your employer provides a retirement plan such as a 401(k), you should contribute an amount you can afford. At the very least, if your company offers to match your contribution up to a certain limit, you should try to invest an amount so that you receive the full benefit. For instance, if your job agrees to match half of your contribution up to 6% of your salary, it is beneficial for you to do so.
These vehicles are an excellent way to invest pre-tax money, which lowers your taxable income. The earnings that your investments generate from dividends, interest, and capital gains are not taxed until you withdraw them.
While no one knows what the future holds, sticking to these resolutions will help ensure that you are setting yourself up for investment success.
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