Post by Vered DeLeeuw*

I remember reading someplace, a while ago, that New Year Resolutions often fail because they are too vague. So when I reflect back on the past and try to learn for the future, I try to avoid making vague resolutions and instead make very specific ones.

This applies to other areas of my life, and it applies to investing too. You can’t decide to “eat better in 2011” and expect it to actually happen. You need to make resolutions such as “I will stop drinking soda,” or “I will not keep white flour products in the house.” The same goes for investing. “I’ll make smarter investment decisions” is a nice goal, but to make it actually happen, we need to break it down into more specific goals.

Here are my New Year Investment Resolutions for 2011. Some of them are not necessarily specific to this year – they are more of “What I expect from myself as an investor” and always apply. But as I rebalance my portfolio each December, I do like to review my investment goals and re-commit to them.

1. Keep Ignoring Investment Trends

It’s obviously important to read financial magazines and blogs, and stay current with what’s going on in the economy. It’s also important to me to keep track of what’s happening with the mutual funds I own – a new manager, for example, is something that warrants taking a close look at the fund’s performance under the new manager. I may sometimes check out mutual fund ratings to see what’s available.  But when you stay current with financial news, you will get exposed to trends, rumors, and “hot” investment tips. Generally, you should ignore them. It is safe to assume that whatever “everyone is doing” is something to avoid, or at least be very critical about.

A good example from the dot-com boom and bust is loading up on tech stocks because they were so “hot” (I did, and I sorely regretted it when the bubble burst). A more recent example is buying too much gold and, some might argue, moving too much money away from stocks and into “safe” bonds.

So my first investment resolution for 2011 and for any year really is to stick with my pre-determined asset allocation and, for the most part, ignore passing trends.

2. Hold On To My Inflation Hedges

I believe that regardless of how the market behaves at a particular time, every portfolio should have around 20% in a mix of inflation hedges such as TIPS, commodities and precious metals. While 2010 was not a year of inflation, I do see inflation as a very real possibility down the road, so right now it might make sense to hold as much as 25% in inflation hedges. Still, considering my first resolution, I don’t really like to make too many “seasonal” changes to my portfolio and as I said, a good portfolio should always offer some hedge against inflation – even in good times. Of course, historically, investing in the stock market has always been one of the best ways to protect our investments from being eroded by inflation.

3. Keep Buying, Or Holding, Stocks

We live in uncertain times, and the temptation to just forget about stocks and put everything in treasuries is definitely there. But my long-term strategy for my portfolio, not just for growing it but simply for keeping up with inflation, calls for a portion of my overall portfolio to be in stocks. It’s not a big portion – I am more conservative than most and at age 39 keep significantly less than half of my portfolio in stocks. But the portion in stocks should remain even when the market gets scary. I do believe in the long-term future and growth of the US economy. If I am wrong, well, then I also have foreign funds, and enough in other vehicles to offset any major losses, especially since I do not expect to need any of the stock money for at least a decade.

4. Keep My Bond Ladder to Short-to-Mid-Term Maturities

Interest rates have nowhere to go but up. My current bond ladder consists of 1-5 year maturities, and as some of my bonds mature throughout this year, I definitely plan to keep it that way.

Have you made any New Year investment resolutions? I would love to hear about them.

*Vered DeLeeuw is a freelance writer and blogger. She writes about a wide range of topics, including personal finance, real estate, marketing and self-improvement, and is a frequent contributor to the Jemstep blog. Vered lives with her husband and two children in the San Francisco Bay Area of California.

TAGS: portfolio management