Five investment resolutions for 2012

December is a time for reflection and as the year draws to a close, plenty resolutions and good intentions abound. However, while pledging to spring-clean your house more often and quit smoking are certainly commendable New Year’s resolutions, planning to completely change your investment and savings strategy in 2012 could lead to costly financial losses.

This is the advice of Anil Jugmohan, CFA, Investment Analyst at Nedgroup Investments who warns investors not to make impulsive changes to their long-term financial plans for 2012.

“Changing one’s investments impulsively, without making the decision as part of a long-term financial strategy, could easily lead to a permanent loss of capital, which is one of the greatest risks that investors face,” says Jugmohan. Instead of making drastic changes at this time of year, investors should focus on cultivating the right attitude towards maintaining their savings plan in 2012, he advises.

Jugmohan recommends five investment resolutions for investors in 2012:

1. Save more than you did this year

“Even if you did not save anything this year, remember that it is never too late to start saving and in fact it will only be to your benefit to do so as soon as you can.”

2. Get rid of unnecessary debt and avoid it completely if possible

Jugmohan warns that debt is actually far more costly than most people realise; “Easy access to debt gives people the confidence to think that they can live way beyond their means which, as we’ve seen in a vast number of cases, can have disastrous consequences.”

3. Pay for your necessities before spending on luxuries

According to Jugmohan, people often make the mistake of spending on luxuries before they settle debts and make their necessary purchases – especially during the festive season. He also urges people to consider the additional costs associated with a luxury purchase – such as maintenance, add-ons or upgrades as these may result in even more debt or unnecessary financial burden.

4. Understand the important tenets of investing

Many investors are rarely well-informed of the key principles of investing. Jugmohan believes that by educating themselves on these simple principles investors will be in a much better position to plan their finances in the future:

a. Risk vs Return

b. Adequate diversification

c. Effects of Inflation, costs & taxes

d. Avoid trying to time the market

e. Focusing on the long term

5. Remember that financial independence is all about strategy

“A financial plan must take into account the big picture and should be in place for the long-term. The most important thing is to plan properly beforehand so that you do not have to chop and change investments prematurely, possibly with a capital loss. To do this, investors need to prioritise their goals and should consult with a financial advisor who can draw up a comprehensive plan aimed at achieving these goals. Once you take the time to properly understand the characteristics of the assets you are invested in, you should simply just stick to this plan,” he concludes.