Here's hoping 2009 is much kinder to investors than the past year. Since wishful thinking won't get the job done, we asked some experienced financial planners for their suggestions on rebuilding your net worth. Here are nine financial New Year's resolutions they gave us.
Surprise: They're not all about saving more and spending less.
1. I will accurately assess my financial situation.
Examine your bank statements for the past 12 months. What do they say about you? Are you a credit-crazed spendthrift who shells out more on monthly interest payments than on basic necessities? Are you a risk-averse saver whose only asset is cash? If you maintain your current asset allocation, will you ever be able to retire? Even at 90?
"Take the time to look in the mirror and make an honest assessment of where you are," says Lee Baker, a certified financial planner with Apex Financial Services, based in Atlanta. "What does your credit card debt situation look like? Have you been making sufficient contributions to your 401(k)? If you don't really know or acknowledge where you are, you are counting on luck to make a better financial future, and that doesn't work."
After appraising your finances, set realistic goals. Don't say, "I'm going to save $20,000 this year," Baker says. For the average investor, that number is too large and abstract. Instead, resolve to save, say, $1,600 a month by increasing contributions to your 401(k) account and eliminating nonessential expenditures, such as your budget for dining out, the gym membership you rarely use or the taxicabs you regularly take instead of the less convenient transit system.
Talk back: What are your 2009 money goals?
2. I will diversify my assets -- for real this time.
Once upon a time, a well-diversified portfolio meant owning a mutual fund with an array of stocks from different sectors. Not anymore, says Phil Carrasco, a certified financial planner at Cornerstone Wealth Management. When the market declines 40%, even a portfolio that includes large-cap U.S. companies, small high-growth companies, international stocks and bonds will take a beating.
Corporate bonds, in particular, have been disappointing in this market downturn, as fears of massive corporate defaults have undercut the low-risk profile of the bonds. This has prompted investors to exit for the relative safety of U.S. Treasury bonds, even when Treasurys are paying close to nothing in interest.