End of Year Strategies: Fix the Financial Missteps of 2016

December 16, 2016

Look to methods of capitalizing on momentum in your investing. Here are two common momentum-killers, and two ways of addressing them.

If you watch any sports at all, you most likely appreciate the concept of momentum. In many contests in which a comeback is afoot, the team or player that is behind experienced some catalyst — an interception, a home run, a double-fault from the opponent – that started turning the tide. After that moment, everything seems to go right for the team on the rebound.

Not all comebacks are purely linear, of course, and they can’t all be chalked up to momentum. But the concept is important to all walks of life. Think about that time you were doing (insert unpleasant chore here), thought you’d never reach the end of it, and then found a second wind, or a rhythm, that changed your whole outlook and allowed you to finish much sooner than expected.

Even investing can have momentum swings and shifts. As we look to Part 2 of our series on how to avoid last year’s mistakes in 2017 (see Part 1 here), we’ll start with finding some momentum.

2016 investing ill: You didn’t set or meet your yearly goals.

2017 remedy: A fresh start is upon you.

Legendary coach and motivator Vince Lombardi believed that players and teams created an environment for momentum through preparation and determination. The investor who meets 100% of their goals is a rare species, indeed. But setting ambitious goals is a huge first step toward meeting them. Putting a specific plan in place for 2017 may be enough, even if you don’t end up reaching all those goals by the end of 2017. In other words, just by engaging in the planning process, you’re a few steps ahead of the version of you that that just chose to fly by the seat of your pants in previous years.

If you have a deep history of setting goals but then failing to achieve them, talk to your advisor, partner, or a trusted friend about the range and scope of those goals. Are you trying to tackle more than you’re capable of? Are your goals realistic? Finding a balance between aggressive goals and those that you’re likely to meet is more art than science.

2016 investing ill: Too many adjustments — or too few.

2017 remedy: Always keep the long-term plan in mind.

It seems strange that too many adjustments and too few adjustments could be investing ills. Both are signs of either a poor investing strategy, undefined goals, or poor follow-through. Making too many adjustments may mean you’re trying to “time the market.” That’s when an investor tries to sell right before a market downturn or buy right before a market recovery. Even experienced investors struggle with doing this successfully, because the markets are incredibly difficult to predict.

Too few adjustments could mean either that you’re falling into investor inertia, burying your head in the sand and assuming that everything is performing according to plan, or simply aren’t focused on making adjustments to your investment mix as your life situation or income changes. Talk to your advisor about the right level of changes for you, given your investment goals. Tinkering with your investment mix just to tinker with it can be counter-productive, so make sure any adjustments you are making really do fit with your long-term financial goals.

As with the fresh start that comes with any New Year, don’t let mistakes of the past inform the present. Doing so is called “sunk cost syndrome,” which we’ll discuss more in a future column. For now, let’s just say that any potholes blundered over in the past don’t have to be obstacles in 2017. The road ahead is clear.