Financial resolutions for 2017

Not Sure Where to Start This Year? Start Here

Most of us look forward to January 1, and the clean slate for new starts that it brings. Work out, eat better, read more – it’s easy to come up with resolutions (though harder to keep them!). But finances can be more difficult to get a handle on. And the end of 2016, in particular, leaves us with a cliffhanger – a new President in the U.S., an uncertain situation in the E.U., and the prospect of (finally) rising rates and reflation may leave you wondering how to prepare for a year where nothing can be taken for granted.

But no matter what happens in the months ahead, there are a few resolutions you should make to ensure your investment portfolio is set up well to meet your objectives.

Do Your Homework

Make it part of your plan in 2017 to learn more about investing – no matter how seasoned an investor you are. For some, this may be following the financial news more closely (though beware knee-jerk reactions! – more on that later). For others, it may be learning more about newer investing products, such as smart beta or currency-hedged ETFs. Whether you’re an expert investor or not, there’s always more to discover.

Control What You Can Control

When lower returns loom, what should you do? One option is to consider riskier investments – though the potential downside of that strategy should be obvious (especially if you’re close to or in retirement). Another option is to make sure you’re not overpaying for the returns you get. By implementing lower-cost strategies, you may be able to effectively increase your net gains – even if returns are stagnant.

In the same vein, relationships between asset classes that could previously be taken for granted appear to be breaking down. The diversified portfolio you assembled in years past may no longer be giving you the same level of risk mitigation now. You can’t change market trends, but you can understand their implications and make adjustments to your portfolio.

Think Long-Term

At a time when the 24-hour news cycle and countless pundits feed a frenzy of investment tips – buy this! sell that! – it may be tempting to react. However, savvy investors don’t let the daily noise psych them out – and that gives them an opportunity to come out ahead. That’s because it’s very hard to time the market, and while you may be able to get out at the right time, you also need to come in at the right time. Sitting on the sidelines for just a few of the best days in the market can have a dramatic impact on returns, as the graph below demonstrates.

Missing top-performing days can hurt your return

Hypothetical Investment of $100,000 in the S&P 500 Index over the Last 20 Years (1996)

Hypothetical missed investment returns chart

Sources: BlackRock; Bloomberg. Stocks are represented by the S&P 500 Index, an unmanaged index that is generally considered representative of the US stock market. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

For illustrative purposes only. The graph above shows how a hypothetical $100,000 investment in stocks would have been affected by missing the market’s top-performing days over the 20-year period from January 1, 1996 to December 31, 2015.

Headlines change day-to-day, but your goals generally don’t. While it can be easy to get swept up by trends or market panic, don’t over-react to short-term changes. Staying invested, even in tough times, may help build wealth over the long term.

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