Eight Individual Investor New Year's Resolutions for 2023

I’ve been sharing a list of New Year’s resolutions for investors since 2011. Every year, I revise the list. Even if you’ve read it before, you will find something new this year.

The list is written from a long-term investing perspective. In doing so, I’ve taken a holistic view of actionable steps you can take to become a more successful investor. 

As you make your personal resolutions, set up calendar reminders to check the progress you are making throughout the year. Are you sticking to them? If not, what can you do to get yourself back on track? Resolutions that require a lasting change won’t be fulfilled with one step. They require ongoing effort and attention. So, pull out your calendar or smartphone and add reminders to revisit your resolutions. Doing so will increase your odds of fulfilling them.

Here are my 2023 New Year’s resolutions for individual investors.

1. Don’t make big bets on uncertain outcomes. The last few years have shown how things can play out much differently than we expect—from the coronavirus pandemic to the aggressive hiking of interest rates by the Federal Reserve in 2022. As we look to 2023, the possibility of a recession and the start of a new bull market are both on the table. The timing of both is uncertain—the severity of the next recession and the strength of the next bull market (whenever they occur) are even more uncertain. Accepting that no one can accurately forecast these things allows you to focus more on your process than on forecasts—a recipe for success.
    
2. Reflect on how you felt about the financial markets this year and review what portfolio changes you made. No single risk questionnaire accurately measures your ability to withstand volatility the way reviewing your own actions and emotions during a bear market does. In 2022, did you sell investments out of fear that they could fall further? Were you able to stay relaxed or did the market volatility and/or economic news leave you nervous? Make note of it. If your nerves got the better of you, it may mean you took on too aggressive of an allocation or investment strategy.
   
   Alternatively, think about what steps you can take to avoid letting your emotions get the better of you. They can include looking at your portfolio less often (e.g., once a quarter or once a year), giving less attention to the financial headlines, switching to a more conservative allocation, creating a bucket of safe assets you can tap during down periods and/or having a financial planner or friend to talk to when the markets have you feeling nervous.
    
3. Invest based on your goals. Your goals determine the amount of wealth you need. They also determine your investing time horizon, the duration of time you will spend on the goal and how much you will need to withdraw from your portfolio relative to overall wealth. These factors should drive your investment decisions—not the headlines of the day. The AAII PRISM Wealth-Building Process aligns your investing decisions with your goals.
    
4. Focus on your process, not on your goals. Mr. Market couldn’t care less about your goals or timelines. He does as he pleases. The only thing you can control is your process for allocating your portfolio, choosing investments to buy and determining when it’s time to sell. Focus on getting the process right for these three things, and you will get the best possible return relative to the returns of the financial markets and your personal tolerance for risk.
    
5. Automate when possible. If I had to pick a single, favorite resolution, this might be it. In late December of each year, I plan out the contributions to my wife’s and my retirement accounts for the following calendar year and start to set them up. Doing so takes advantage of what is known as a Ulysses contract. It binds my actions in advance before I’m in a situation where I might be tempted to spend the dollars I should be saving.
   
   There are many actions you can automate. Contributions to savings, retirement and brokerage accounts can be directly taken from your paycheck or from your checking account. (If the latter, have the money pulled out on the same day you get paid or the following business day.) Most mutual funds will automatically invest the contributions for you. Required minimum distributions (RMDs) can be automated to avoid missing deadlines and provide a monthly stream of income. You can also have bills set up to be paid automatically to avoid incurring late fees. Estimated tax payments can be scheduled in advance.
    
6. Take care of your health. Yes, this resolution is coming from a guy who took up long-distance running during the pandemic, but there is plenty of scientific evidence backing me up. Regular exercise, a proper diet (eat your vegetables!) and adequate amounts of sleep have been shown to reduce the risk of or lessen the severity of many diseases and ailments. All three are also good for your mental and emotional state. Combined, they help you make better investing decisions and can lower your lifetime medical costs.
   
   Regular hearing tests are also important. (I’ve already scheduled one for 2023.) Hearing loss has been strongly linked to cognitive decline, and cognitive decline impairs your ability to make even basic financial decisions.
    
7. Talk to your family about investing and your finances. If you’re reading this, you likely have at least an interest in investing. Share it with your family members by having a conversation with them. Talk about how you invest, what you’ve learned and even the mistakes you’ve made. It’s a great way to pass along a legacy to those younger than you and to maintain a strong bond with those older than you. Our PRISM process can be a great way to start those conversations.
   
   While you are talking about investing and finances, tell your family members where they can find important documents and which professionals you work with. Having this information will better empower them to step in on your behalf when the time comes.
    
8. Take advantage of being an individual investor. Perhaps the greatest benefit of being an individual investor is the flexibility you are afforded. As AAII founder James Cloonan wrote: “The individual investor has a distinct advantage over the institution in terms of flexibility. They can move more quickly, have a wider range of opportunities and can tailor their program more effectively. They have only themselves to answer to.”
   
   Not only are we as individual investors not restricted by market capitalization or investment style, but we also never have to report quarterly or annual performance. This means we can invest in a completely different manner than institutional investors can. Take advantage of this flexibility because doing so gives you more opportunity to achieve your financial goals.