New Year's Resolutions for Investors in 2016
Now's the time to reflect on the past year while we attempt to read the tea leaves for 2016. After six years of solid, steady gains the stock market fell short of positive territory in 2015 with a late summer correction and an increase in volatility that many expected.
As always, it's important to look long term. Volatility will continue. The election cycle, rising interest rates, oil prices - all will factor into 2016.
Is it time to rebalance your portfolio? Reduce risk? Consider bonds? You'll want to talk to your adviser to determine what best suits your needs. Take some time to look over your 2015 statements and consider these New Year resolutions as you chart a path for your 2016 investing.
Investing requires commitment to the long term which has become exceedingly difficult in this day of the 24 hour news cycle which constantly portrays that the sky is falling. Truth is, it's nothing new. For many it's an opportunity. 2016 will be full of challenges, choices and opportunities, if you stick to these New Year resolutions:
1. Quit giving away your money. Reduce debt. Lower your credit card balance. Credit card companies have not lowered their rates at all and banks are reaping tremendous profits. Banks are paying individuals 1 percent for savings while charging up to 30 percent in credit card rates. A $5,000 credit card balance with an interest rate of 20 percent can cost you hundreds and hundreds of dollars every year. Pay off that amount and you've given yourself a $1,000 check.
Uncover hidden fees in your cellphone bill, cable bill and bank fees. Companies are willing to negotiate lower fees in return for your loyalty.
2. Maximize your company-sponsored retirement plan. Most companies match up to a certain percentage. The companies match is free money. Take advantage of that - even if it means pulling money out of low-interest savings accounts. You might consider putting away more than the company match, all the way up to the maximum. For example, a working couple with $100,000 in savings who fails to invest the maximum $24,000 per worker in their employer's retirement plan can wind up paying $17,000 or more in avoidable taxes depending on their tax bracket.
3. Convert your IRA to a Roth IRA. You may have losses that you sustained in your IRA during 2015. If the stock market appreciates substantially in 2016, a Roth conversion in early 2016 will make a lot of sense. All of that 2016 growth will not be taxed. Better yet, you don't have to pay the tax on the Roth conversion until April 15, 2017. If it turns out that 2016 is a bad year in the stock market, you have the option of undoing your Roth conversion in a technique called a recharacterization where you basically put things back to the way they were before the Roth conversion and you avoid the tax.
4. Compound interest is your best friend. Understand this concept and reap its rewards. An annualized return of seven percent doubles your base approximately every ten years and quadruples your base approximately every twenty years. One hundred thousand dollars becomes approximately $800,000 every thirty years. Take a penny. Double it every day. By the end of the month that penny is worth ten million dollars. Take the long-term approach and sleep much better.
5. Pay yourself first. Commit to savings. Set up automatic transfers to your savings or investment accounts, just as you set up automatic payments for the mortgage or electric bill. Before you know it, you'll be growing a healthy nest egg.
So in short, reduce your debt, watch your back, pay yourself, be consistent and find a wealth manager you trust. When things get uncomfortable remember these two words: compound interest. Happy New Year!
• Dean Hedeker is the owner and principal of Hedeker Wealth LLC in Lincolnshire. He has over 30-year's experience in estate & financial planning and wealth management. Dean is an Attorney and Certified Public Accountant. For more information, visit www.hedekerwealth.com or contact Dean at dhedeker@hedekerwealth.com.