The coming of the new year has traditionally been a time for people to make resolutions about how they’ll improve their way of living in the year ahead. It’s become famous in some circles to joke about those resolutions, and how few people stick to them. That’s particularly true when it comes to exercise and fitness.
But while many people may vow to exercise more, eat less, and get healthier, fewer people make resolutions to improve their financial health. That’s a mistake, because getting in good financial shape is just as important as getting in good physical shape.
Each new year offers a good opportunity for retirement savers to reassess their financial goals, their financial status, and make the necessary changes they need to achieve their financial aims. It’s an exercise that everyone should perform at least once a year. With that in mind, here are five resolutions you can make that could help improve your financial well-being.
1. Develop a Retirement Investment Plan
Many people save for retirement, but few have an actual plan for saving. That’s somewhat understandable, given the seeming ubiquity of workplace 401(k) investment programs. Many investors just plow money into their 401(k)s without thinking, watch their balances go up, and figure that they’re in pretty good shape. But that isn’t always true.
Many people are so focused on watching their balances increase that many haven’t planned for what to do when their balances begin to decrease. That’s the first thing they need to plan for. But they also need to establish a long-term plan for their retirement. Putting all your eggs into your 401(k) basket may look good while markets are doing well, but how will your savings survive a down market?
The first part of developing a retirement investment plan is to set goals for yourself. How much money do you want to have 5, 10, or 20 years down the road? How much money do you plan to withdraw each year? How much money will you need to invest now, and at what growth rate, to reach those goals? Start asking yourself those questions and eliminate anything that doesn’t help you reach those goals.
2. Rethink the Way You Invest
Numerous changes have come to retirement accounts in recent years, especially with respect to required minimum distributions (RMDs). First the RMD age was increased to 72, now it’s been increased to 73, and by 2033 it will be 75. That can increase the length of your investment timeline, and consequently also spur changes to the makeup of your investments and your risk profile.
Those aren’t the only changes made either, as the introduction of automatic 401(k) contributions, changes to early withdrawal penalties, and changes to catch-up contributions will all have an impact on retirement planning. Now’s the time to sit down with your financial adviser and tax adviser to see how these new changes to tax laws could impact you.
3. Find More Ways to Save and Invest
No one ever reached retirement wishing that they had less money saved up. So why should you be any different? Now’s the time to assess your spending habits, your savings, and your investments so that you can figure out where you can add more to your savings.
It can be little things like forgoing that bar of chocolate at the grocery store, or bringing coffee in a thermos to work instead of heading to Starbucks. Eventually those little changes add up. If you can find an extra $100 a month to save, invest, and put to work for you, that could result in tens of thousands of additional dollars in your retirement portfolio by the time you retire.
4. Diversify Your Portfolio
Just as you don’t want to put the entirety of your savings in a 401(k) account, you also don’t want to put the entirety of your savings into any one class of investments. If you have 100% of your assets in stocks, you’re liable to take on huge losses during a stock market crash. If you have 100% of your assets in bonds, you’re likely to lose money when bond markets freeze up.
The ideal percentages to invest in each asset class are a personal decision that depend on your time horizon, risk appetite, and personal financial goals. And the exact makeup of your portfolio will and should fluctuate over time, as varying market conditions will necessitate varying types of investments.
Many people may think that a mix of stocks and bonds is enough diversification, but both types of assets are tied to Wall Street. In the event of a financial crisis, both stocks and bonds could lose value. That’s why it can be so important to branch out into other asset classes such as gold and precious metals, real estate, and commodities.
5. Protect Yourself Against Risk
Risk is unavoidable when it comes to investing, and everyone is going to suffer some losses at some point. But the really successful savers are those who minimize their losses, especially when things get tough. While it’s nice to make big gains, if those are coupled with big losses on the other side, you may be better off sacrificing some of those big gains in the short term and investing in assets that won’t leave you liable to huge losses.
Here’s where precious metals like gold and silver can help you, as their long-term growth, performance during periods of high inflation, and performance during financial crises have provided numerous benefits. Precious metals aren’t the only asset that can reduce the risk profile of your investment portfolio, but their ability to hedge against inflation and recession and continue to help you make investment gains make them almost one of a kind.
Hopefully these five resolutions can help you re-evaluate your investments and improve your ability to build up your wealth in the future.
This column was originally published in 2020 and was updated for 2023.