If you're like me, you have a bit of a love-hate relationship with the New Year's Resolution.
Your rational side might wonder a bit why January 1st is such a better time to initiate a change then one of the other 364 days of the year.
Or you might have seen a depressing statistic about the percentage of people that manage to keep their resolutions, and wondered why you should even bother.
Or you might wonder if by risking setting yourself up for a failure, any resolution you might make would actually be doing more harm then good.
And yet... you still find yourself drawn to making one.
I think it's because once we reach a certain age, our brains are fairly hard-wired. So making any kind of meaningful change in our lives without the benefit of a crisis becomes so difficult that we need to take advantage of any help that we can get. If the flipping of a calendar provides even a small subliminal nudge in the right direction, then we would be fools not to take advantage of it.
I have personally learned a lot about implementing change from the research of Stanford Professor BJ Fogg. Fogg's research shows that the biggest thing that we could all do to improve our chances of successfully changing is to dramatically reduce the difficulty and scope of the changes we are trying to make.
In other words, change is too hard. If you want to succeed, make it easier.
Many people resolve that they are going to make this the year that they start to take control of their finances. And most of them will fail. Why? It's because they are resolving to do things that are way too hard.
The irony is: they don't need to be. Achieving great investing returns can be pretty simple, if you take the right small steps at the beginning. In that spirit, here are three bite-sized things that you can do right now that will make it dramatically easier to successfully complete your resolutions and make 2014 your best year of investing yet.
Start the paperwork to consolidate your investment accounts at Vanguard.
Why: Keeping financial accounts at multiple different institutions inserts exactly the kind of inertia that you want to avoid if you are trying to make a difficult change in your life. Remembering passwords, trying to calculate your consolidated asset allocation, dealing with the paperwork -- it's all a pain and it all creates subconscious barriers to even thinking about investing. Keeping everything at one institution just makes life easier. While there is more than one good option, Vanguard takes the clear lead because of their low fees, customer-friendly approach, and the fact that they let you trade their own top-notch family of ETFs commission-free (Reminder: We get nothing from Vanguard, or anyone else, for saying this).
How: Vanguard's website makes the process fairly easy. They can even help you rollover any 401(k)s to IRAs while you are at it.
Setup recurring paycheck deductions to go into an investment account.
Why: Making sustained investments over time is the single best thing you can do for your retirement, and there is no better way to do that then by putting them on autopilot so you don't even have to think about making them.
How: If you have a 401(k), you can do this by telling your employer (either directly or through a website) how much of your paycheck you want to put into your 401(k) every pay period. At the very least, you should contribute enough to take advantage of any free matches they offer. Even if you don't have a 401(k), you can set things up so money will come out of your paycheck every period and go into your IRA. If you don't already have an IRA, you should set one up at Vanguard today.
Put the majority of your portfolio in a diversified mix of ETFs or index mutual funds.
Why: This should come as no surprise to anyone that has spent much time on this website. Unless you are going to spend a lot of time picking stocks and researching companies, your choice of asset allocation is going to account for 95% of your investing results. So why not make achieving your desired asset allocation as painless and inexpensive as possible? ETFs are a great way to do just that. If you spend a couple hours optimizing things now, you might not have to do much else the entire rest of the year to meet your resolution!
How: You can follow the asset allocation advice on this site or in my book (among many other places), and build your own diversified portfolio from a handful of different ETFs. Or if you are interested in adjusting your allocation periodically so that you can avoid the scary and wealth-destroying impact of bear markets and bubbles, you could read about the IvyVest Dynamic ETF Strategy or try it free for two weeks. Following the strategy takes as little as two hours a year.
Small doesn't have to be mean insignificant. These three small but powerful actions, all of which can be completed in an afternoon, could literally set you up to save hundreds of thousands of dollars over your lifetime.
Here's to a great year of investing!
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