Our Company and Sites

Investing Resolutions for the New Year

Many of us start out the New Year with things we want to do better. Work out, eat healthy, read more – it's easy to come up with resolutions (though harder to keep them!).

January is also a great time to take a look at the state of your investment portfolio. The end of 2017, in particular, left us with a cliffhanger – a new tax plan, rising rates and inflation, and geopolitical instability in the Middle East and North Korea may leave you wondering how to prepare for a year where nothing can be taken for granted.

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

Start 2018 with Saving – on Fees!

Start 2018 with the resolution of reviewing your investing expenses. Most investors focus on the returns their portfolio generates, not recognizing that fees can be a significant drag on total returns. The 1% (or even 2%) fee a mutual fund charges may seem like small change. But if your annual returns are 8%, a 1% fee means you're paying 12.5% of that return back to the fund manager. Over time, and with compounding, those costs can add up.

Saving on Fees Could Earn You
$66,000 Over 10 Years

hypothetical growth of a fictional investment of $250,000

Chart reflects the hypothetical growth of a fictional investment of $250,000 with an 8% return and assumes the reinvestment of dividends and capital gains. Total expenses calculated are a combination of the Tax Cost Ratio and average Prospectus Net Expense Ratios as of 12/31/2017. Tax Cost Ratio is a Morningstar measure of the impact of taxes on capital gains and income distributions on performance. The average 5-year Tax Cost Ratio of iShares ETFs and actively managed open-end mutual funds available in the U.S. (excluding municipal bond and money market funds) is 0.76% and 1.46%, respectively. The average Prospectus Net Expense Ratio for the iShares ETFs is 0.35% and active open-end mutual funds 1.14%. The graph is for illustrative purposes only and is not indicative of the performance of any actual fund or investment portfolio.


That's why investors are increasingly turning to ETFs, or exchange traded funds, which can offer significantly lower costs and competitive performance. In fact, iShares Core ETFs have outperformed more than 75% of their mutual fund peers on average over the past ten years1, at 1/3 the cost!2 How's that possible? Mutual funds are managed by teams of people trying to "actively" trade in and out of the market in an effort to come out ahead. You typically pay more for that service, even if the fund ends up down for the year.

Consider this: Only 12% of active managers beat their benchmarks after fees over the last five years3

Active buying and selling within a mutual fund by the fund manager can also accumulate a hefty tax bill for investors at the end of the year. ETF portfolio managers, on the other hand, aim to track their specific market index as closely as possible, which tends to result in much less trading and lower management fees. The potential benefit to you? The possibility to keep more of what you earn after fees and taxes. It’s important to note that buying and selling shares of ETFs may result in brokerage commissions or tax consequences.

Diversify

Even experienced investors sometimes think that diversification means having accounts at multiple brokerage firms or holding a lot of different stocks or mutual funds. What diversification actually means is holding investments that balance out the ups and downs of the markets, to help provide a smoother ride for you. This does not necessarily mean a lot of different funds – rather, it’s important to have investments that do not all move in the same direction together. We offer a simple Core portfolio builder tool to illustrate what such a portfolio might look like using ETFs, based on your risk tolerance and investment time frame.

Think Long-Term – Stay in the Game

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. Markets move up and down, and investments will move with them to varying degrees. However, savvy investors don’t let the daily noise psych them out – and that gives them an opportunity to come out ahead. It’s almost impossible 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. In fact, largely because of attempted market timing, the average investor has far underperformed the market:

Knee Jerk Action to Market Volatility
Hurt Investor Outcomes

Knee Jerk Action to Market Volatility

Sources: BlackRock; Morningstar; Informa Investment Solutions; Dalbar. Returns based on performance between 1/1/1996-12/31/2015. Asset classes represented by the following indexes: US Stocks = S&P 500, 60/40 = balanced portfolio with 60% invested in the S&P 500 Index and 40% invested in the Bloomberg Barclays U.S. Aggregate Bond Index and rebalanced annually, US Bonds = Bloomberg Barclays U.S. Aggregate Bond Index, Average Investor = Dalbar’s average asset allocation investor return, which uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. The study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for various periods. Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.


Missing just a few of the best days in the market can have a dramatic impact on returns (see chart below). If you have a hard time stomaching market ups and downs, consider ETFs that are designed to minimize volatility. These may help you stay in the market long-term – an important driver of successful investing.

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 Investment of $100,000

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.


Keeping New Year’s resolutions can be hard, and it’s easy to delay making important financial decisions. In 2018, take steps to:

    • Lower your investing costs to help you keep more of what you earn
    • Make sure your portfolio is truly diversified
    • Avoid reacting to the ups and downs of the market – staying invested is key to long-term success

Making these changes to your investing habits now can help ensure you’ll meet your goals in the future.

You may also like

Learn more about ETFs here