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I urge you to make 2018 the best year possible.
I've promised to help you along that journey.
Today, I'm keeping that promise.
While it's still early in the year – meaning there is still plenty of time to get yourself in a good groove – here are 12 moves you can make that will help you steer your course to financial stability and even wealth.
Think of it as a "Baker's Dozen" set of strategies that will shape your thinking, help with your planning, and secure your future…
We refer to them internally here as our "Downturn Lessons."
Now I'm going to share them with you…
Downturn Lesson No. 1: Don't Run for Cover
Investors are lousy at predicting short-term market trends. Indeed, as I hinted just a moment ago, if you sell out in a bad market and miss the rebound (or even miss a handful of the "best" market days), your long-term returns plummet.
If you invested $10,000 in the S&P 500 at the start of 1995 – and stayed fully invested to the end of 2014 – your average annual return would have been 9.85%… and your stake would have grown to $65,453, JPMorgan Asset Management said in its 2015 "Guide to Retirement."
But if you missed just the market's 10 best days, your average annual return would plunge to 6.1% – and your portfolio would only be worth $32,665. In other words, missing those few days where stocks were stock cut your gains in half.
It gets worse.
Miss the 60 best days (you cash out, run to the sideline, and only reinvest after the market outlook becomes "clear"… meaning you dozed through most of the bull-market rebound), and your portfolio actually records an average annual loss of 3.84%.
That $10,000 you invested? It's now worth $4,570 – after two decades in the market.
Build yourself a nice "foundation" of investments with a long-term horizon. And augment that by looking for special-situation opportunities. That's a one-two punch that will really put you on Easy Street in the long run.
Downturn Lesson No. 2: Keep Your Plan Updated
Everyone should have a financial plan – a written document that outlines your financial goals… and details how you expect to achieve them. Be sure to assess whether you're behind, ahead of, or right on schedule. Do a new assessment each quarter.
Downturn Lesson No. 3: Reassess Your Tolerance for Risk
During the "dot-com" boom, lots of historically conservative investors were making so much money that they ceased to be concerned that this was being done by using increasingly risky stocks. (I have a story to share on this… in a few minutes.)
When that dot-com boom turned into the "dot-bomb" bust, lots of folks were positively horrified by the shellacking they took. A physical therapist friend of mine was so badly stung that he can't retire – and he continues to work today – in his late 60s, even though his health problems have left him virtually crippled and visually impaired.
Don't get stung like that.
Take the time to assess your risk tolerance. And be honest. How much volatility can you really stand? How will you feel if the big gainers you're sitting on fall back, eradicating a chunk of those gains? Do you have the emotional makeup to ride through a whipsaw market? What about a full-blown crash? Finally, has your risk tolerance changed – due to the change in your age, financial situation, new goals, or experience in the markets?
Once you've answered those questions, make any changes you feel you need to make in order to feel more secure in such a potentially uncertain environment.
Downturn Lesson No. 4: Ditch Your Dogs
No, not your pets.
In fact, during times of intense stress, studies show that pets can help you relax and actually promote wellness. (And I love animals…)
I'm talking about ditching your "doggy" investments – the stocks, funds, or other holdings that have cratered in value or have done nothing during this powerful bull market. By dumping those laggards, you help yourself in a bunch of ways. First, you reduce the odds for still-steeper losses. You raise capital for new profit opportunities and even create a "margin of safety" in your holdings. And if you put that cash to work in a better-performing investment, you also rev up your returns.
Downturn Lesson No. 5: Harvest Some Tax Write-Offs
If you have losses in some of your mutual funds, stocks, or ETFs, you can save some money on your taxes but still stay invested pretty much as you were by executing what's known as a "tax swap."
You lock in the capital losses by dumping the losing positions and purchasing positions in companies in similar industries or funds with similar investment mandates. If you do this, make sure to beware of the "wash-sale rule," which can disallow the tax break if you invest the sale proceeds in a "substantially identical" investment within 30 days of the sale (before or after).
The First Step on Your Road to Millions Starts Here: All you need is a computer or smartphone and just 10 minutes of "work" to potentially put $1 million in your bank account faster than you ever dreamed. Read more…
Let's say you have a stock that's a loser, but that you still like. And you worry it could pop during the 30-day stretch that you're "out" of it.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.