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The new year is here,
the time when millions of Americans turn
their best intentions into New Year's
resolutions. So as you ring out the old —
bear market, good riddance! — and ring in
the new, here are six resolutions that could
give you a head start on your financial
goals in the year ahead.
1.
Review your asset allocation.
After two years of market volatility, the
asset allocation plan that you and your
financial professional put in place for the
long term may have slipped off target.
Stocks may be underrepresented compared to
your original plan, and bonds may have a
heavier weight than you intended. Ask your
financial professional about rebalancing —
a strategy to bring your asset allocation
back in line with your goals and risk
tolerance. He or she can help you choose the
strategy that is best for you.
2.
Confirm your risk tolerance.
No one likes a bear market, especially one
as severe as we've witnessed over the past
two years. However, the investor with high
risk tolerance rides out a severe market
downturn while the investor with low risk
tolerance looks for the exits, generally
because there's a mismatch between his or
her investments and risk tolerance. If the
recent bear market opened your eyes to your
risk tolerance, talk to your financial
professional about a fresh appraisal — and
ways to adjust your portfolio so that you
are comfortable in both rising and falling
markets.
3.
Get back into the stock market one step at a
time.
An uptick in the economy and a rising stock
market may make equities look more inviting.
Once you've decided to get back in, take it
slow with a strategy called dollar cost
averaging. Choose a fund, an amount and an
interval — say, once a month. Invest the
same amount in the same fund at the same
interval and over the long term, you have
the potential to lower your average cost per
share. Dollar cost averaging doesn't
guarantee a profit or protect against a
loss. And, you should have the resources to
continue the strategy over the long term.
4.
Give your retirement savings a raise.
If weak market returns have dealt a setback
to your retirement goals, the easiest way to
get back on track is to give your retirement
savings a raise in the year ahead. In 2010,
you can contribute up to $16,500 annually to
most employer plans, including 401(k),
403(b) and 457. Add another $5,500 if you
are age 50+. The IRA contribution limit is
$5,000 with a $1,000 catch-up limit if you
are age 50+. If you can't max out your
retirement savings contributions, resolve to
raise your contributions in 2010.
5.
Get rid of credit card debt.
One of the easiest ways to free up more cash
for investing is to get rid of credit card
debt, which eats up monthly income and
compounds at high interest rates that can
balloon even a modest balance into a
long-term burden. If you have multiple
credit cards, aim to pay off the one with
the highest interest rate or target the one
with the lowest balance. The first strategy
may save you some money, but the second may
bring a greater sense of satisfaction, which
can help you maintain your resolve.
6.
Build an emergency fund.
One of the easiest ways to avoid
accumulating credit card debt is to have an
emergency fund that you can turn to when the
car breaks down, when you lose your job
or when a health emergency exceeds your
insurance coverage. Your goal should be to
accumulate three to six months of living
expenses, so that you won't have to
turn to high interest credit cards or your
retirement savings when the unexpected
happens.
Today's
resolutions, tomorrow's rewards
You may not be able to tackle all these
resolutions at once, so look for small
opportunities that can make a difference.
Target one guilty pleasure, such as that early
morning latte. Add it to your retirement
savings or your emergency fund and that's an
extra $1,000 for the year. Or, use it to pay
down your credit card and save hundreds of
dollars in interest. With so much potential,
even one resolution is worth making —
and keeping — in the year ahead.
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