Starting a new calendar year may seem like the time to revisit your investment strategy, but remember that things don’t just reset on Jan. 1. It may be a new reporting period and an opportunity to revisit your financial goals, but it’s also an important time to brush up on investing basics. But before you consider changing investments around at the beginning of the year, keep these five points in mind:
1. Know what risks you are taking.
Building an investment strategy involves knowing the expected range of outcomes. While you can't control market returns, you can control the amount of risk you're willing to take. If you invest in single stocks or bonds, you know your risk is concentrated to the performance of a handful of companies.
Moving into the ETF and mutual fund investment set can get confusing. These are pooled vehicles that have stated investment strategies and a lot of investments underneath the hood. I think both have a role in providing diversification to investors. However, just because they have a lot of securities, take the time to understand what they invest in so when volatility arrives, you understand why they are behaving the way they are.
There are thousands of registered ETFs and mutual funds that many investors access. They can range from stock strategies to bond strategies, commodities, real estate securities and more.
As you head into 2024, know where you are exposed to volatility and have an expectation of how the investments can behave in short periods of time.
2. Be careful anchoring to forecasts.
This is the time of year when published predictions for the coming year start coming out regularly. While forecasts can be entertaining to read, their success rates are generally low.
Take 2023 as an example, when entering the year forecasts were generally not optimistic because bonds and stocks were down coming out of 2022. While 2023 has had some notable pullbacks, many areas of investing have produced positive results despite what the forecast said coming into this year.
This example emphasizes the difficulty of accurate forecasting. Instead of using annual forecasts to shape your long-term investment strategy, focus on broader market trends and avoid making decisions solely based on short-term predictions.
3. Have a reasonable timeline for your investment strategy.
I cannot stress the importance of this tip enough. You will never be able to control how investment markets behave, but you can control your expectations and behavior. If you have a well-diversified portfolio and it aligns with your timeline, don’t think that you need to change things up just because we are entering a calendar new year.
I suggest periodically reassessing your time horizon in light of changes in life and adjust your risk level accordingly. This is also something a financial adviser can help with.
4. Challenge your thinking and make sure you are not performance chasing.
If you truly are seeking to make investment changes at the beginning of the year, ask yourself some questions.
- Has the timeline for needing the portfolio money changed?
- Were you taking a risk that you are no longer able to bear going forward?
- Are you making a change because something else has performed better recently?
As you answer these questions, see if any of them exhibit trying to time the markets or react to forecasts.
The question about performance is important. If you own a truly diversified portfolio, remember you are going to have exposure to assets that might be the best performing in a calendar year, but also investments that behaved differently over this last calendar year. The tempting thing to do is to dump what may not have been the top performer and move those assets into something else that has done better recently. Before going down that path, understand what may have caused an investment to lag and try to determine if it was just the current environment or if it was a strategy that is broken. That is not always the easiest task.
5. If you have a long-term strategy, don’t fret day-to-day.
Volatility is a normal part of investing. This is one of my favorite reminders because it’s so easy to forget. J.P.Morgan puts out a quarterly guide to the markets with a slide showing S&P 500 returns by calendar year going back to 1980 (on page 15 in the Equities section). That chart shows the largest intrayear decline investors had to endure and overlays it with where the index closed in each calendar year. On average, there is at least one 10% decline during a calendar year. About 75% of the calendar years covered finished the year with positive returns.
It’s easy to look back and see historic returns, but it’s a harder task to control behavior during the years when the market declines. Keep a level-headed approach, even if faced with volatility in riskier assets, and stay focused on your overarching investment goals.
As we head into the new year and get bombarded with more information about what is coming in 2024, take some time to consider these five areas if you are assessing your current investment strategies. By doing so, you can make decisions that are based on your goals, amount of risk you are comfortable with and timeframe to allow strategies to work.
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.
Brian Spinelli is based in Halbert Hargrove’s Orange County and Long Beach offices. His responsibilities encompass running the firm’s investment committee as well as advising individuals and institutions on their investment and wealth advisory needs. Brian was named to HH’s management team in 2012. He earned his Bachelor of Arts in Business Administration – Finance from Loyola Marymount University in 2002 and his MBA from LMU in 2005. He is a CERTIFIED FINANCIAL PLANNER™ professional. Halbert Hargrove is the creator of LifePhase Investing and headquartered in Long Beach, Calif.
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