Tuesday, 21 December 2010

New year financial resolutions

New year financial resolutions
John Wasiliev
December 21, 2010 - 11:22AM

While the coming fortnight usually sees most people relax and enjoy the festive season, anyone who is taking a longer break could do worse that put some of this time towards a review of their investment strategy.

One reason why such reviews can be useful at this time of the year is because you can do something about a strategy that may not be going that well while there is still plenty of the financial year remaining.

The end of the calendar year is half way through a financial year so there is still six months of the 2010-11 financial year remaining. You can also come up with financial new year’s resolutions with the goal of implementing at least one that should improve your financial position.

For example you could make it a resolution that if you invest in shorter period term deposits that offer attractive returns that you still getting a good rate when the investment is rolled over. Banks have been known to invite investors to roll a deposit over for a 'similar term' without pointing out that same term does not necessarily mean the same higher interest rate.

Another thing you can do, suggests Elizabeth Moran, an analyst with fixed interest broker FIIG Securities, is reassess your appetite for taking risks with your money. Is it still the same as it was a year ago or have you become more pessimistic or optimistic?

Being more gloomy about the year ahead could suggest your tolerance for risk has lowered. Remaining optimistic on the other hand suggests you are happy with the present state of affairs. A question to ask is whether your state of mind is related to the state of your portfolio.

A useful strategy when conducting a review is to check your exposure to different types of investments – shares, property and income investments – and decide whether they are likely to satisfy your goals for the rest of the year.

Another consideration is to put any goals you have into perspective and maybe do things a bit differently.

A commentary in the current edition of the National Australia Bank's private wealth division’s newsletter highlights the importance of having goals. It also makes a very interesting observation about goals and investing.

It notes goals are often expressed with a single purpose in mind such as meeting certain future liabilities or expenses like paying for children’s education in 12 years’ time or retiring with a certain level of income at age But the reality is that people often have multiple goals with different time horizons as well as different priorities.

An alternative investment strategy is one that that recognises multiple goals, priorities and time horizons. It can involve having distinct investment portfolios for each goal with each portfolio evaluated on its ability to meet its objective.

Reflecting on the connection between an investment strategy and goals can be worthwhile at strategic times, such as the end of the calendar year, because it can be a period when people have the commodity many complain they are short of, namely the time to think about things. January is generally the quietest month of the year in financial markets, making it the most suitable time to spend considering your financial affairs.

By contrast, the end of the financial year around 30 June is often a rushed period. There is never a real break and most people are as busy in July and August as they are in May and June. At least over the Christmas-New Year summer holiday period, things do slow down to give you space to consider your financial future.


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