It’s that time again, time to make some New Year’s resolutions. This year, in addition to lowering feed costs, taking advantage of more milk-marketing tools, increasing milk price premiums and getting better organized, you may also want to consider a few financial investment resolutions. Here are a few suggestions.

  • Reduce your debts. Look for ways to cut down or consolidate your debts. It may not be easy, but it’s worth the effort because the lower your debt load, the more money you’ll have available to invest for the future.
  • Build an emergency fund. If you don’t already have an emergency fund containing between six and 12 months’ worth of living expenses, start building one soon. Keep the money in a liquid vehicle — one that’s separate from your everyday checking and savings accounts. Without such an emergency fund, you may be forced to dip into your long-term investments to pay for unexpected costs, such as a major car repair, a new furnace or a large medical bill.
  • Don’t overreact to volatility. In 2011, the financial markets have been volatile, with big gains followed by big drops followed by big gains — a true roller-coaster pattern. Try not to let large, short-term price movements influence your investment decisions. Many of the factors that cause jumps or declines are not that relevant to long-term results — and as an investor, you want to focus on the long term. Concentrate on building a portfolio that’s suitable for your individual goals and risk tolerance.
  • Be aware of different types of risk. For many investors, “investment risk” strictly means the possibility of losing principal when the value of an investment drops. Consequently, to cut back on their risk in the face of a volatile market, they may sell off stocks and load up on certificates of deposit (CDs), bonds and other so-called “safer” investments. But each investment actually carries its own type of risk. For example, if you own CDs that pay a 2 percent return, and the inflation rate is 3 percent, you will lose purchasing power over time. And if you wanted to sell your bonds before they had matured, you’d have to sell them at a discount if the market interest rate had risen above the “coupon” rate of your bond because no one would pay you full price for them. Just be aware that no investment is “risk-free,” and try to build a diversified portfolio that can lessen the impact of one specific type of risk.

Make 2012 a good year in which to make progress toward your important financial goals. Plan ahead — and make the right moves.

Source:  Edward Jones