If you’ve resolved to optimize your investment plan this year, you may be overwhelmed by all the different opinions and advice about how to best do it.  We’ve made it easy by pulling together the tips you need to know to kick the year off right, keep focused throughout the year, and achieve the results you are seeking …  all from the top financial experts.

Establish a Plan

Research shows that one of the main reasons for failed resolutions is a simple lack of planning. So, the first step to financial success is to establish a financial plan, according to Roger Wohlner of US News and World Report.  “A properly constructed financial plan analyzes your current situation, helps you establish financial goals, provides benchmarks against which to gauge your progress, and includes implementation suggestions.”  After all, how can you accomplish your goals if you don’t know what they are or how to get there?  Going through the exercise of setting out your investment aspirations can provide increased clarity about the right decisions to make for your portfolio.

De-Clutter Your Financial Life

He also recommends doing some spring cleaning of your investment accounts.  “Simplify things to make monitoring your financial situation as easy as possible.”  That might include consolidating older 401(k) plans and IRAs into fewer accounts.  It should also include getting a free account with Jemstep so you can view and track the progress of all your accounts in one secure location.  If you choose to rollover your 401(k) accounts, make sure you avoid penalty fees, by having your old employer transfer the money directly to the new account and not directly to you.

Find Ways to Invest More

Emily Brandon, of US News and World Report, suggests a few ways you can increase your contribution amounts.

The maximum contribution limit for 401(k)s will increase by $500 in 2012.  Adjust your automatic monthly contribution to ensure you are investing the maximum amount.

If you are not able to contribute the maximum amount and your employer offers a matching program, try to at least invest up to the amount of the match for an immediate doubling of your investment contribution.

Minimize the fees you pay to effectively save more.  A new regulation in 2012 will require plan sponsors to provide details of actual dollar amounts charged against your account and mutual fund choices.  Compare those fees charged on a fund in your plan to the fees charged for that same fund you could get in an IRA.

Consider investing a portion of a windfall toward retirement.  A windfall includes a lump sum that you might receive, such as a bonus, tax refund, gift, inheritance, etc.

Don’t Try to Outsmart the Market

Walter Updegrave of CNNMoney says “too many investors try to outsmart the market by constantly fine-tuning their portfolio.” He reports that investors would be better off by “setting an asset mix that makes sense given your investing time horizon and sticking to low-cost index funds which limit the drag of fees.”  “And by stick[ing] with that blend, resisting the urge to buy or sell based on market movements or, worse yet, on the blather emanating from Wall Street and the financial press.”

In his article, he provides a few scenarios in which investors who stuck to their original asset allocation this year and avoided the urge to invest based on this year’s dramatic headlines would have earned an annual return of 2-4%.  While those returns are not something to get excited about, they don’t come close to what many feared.

“Because if there’s one thing we should have learned over the last year it’s that investing on the basis of speculation, whim or fear is a loser’s game that’s incompatible with building wealth over the long term.”

Rebalance

As Emily Brandon reports, “volatility in the stock market this year may have caused your current holdings to shift significantly from their target allocations.”  Your financial plan should include a target allocation that is appropriate for your investment goals, risk tolerance, and time horizon.  But overtime, the performance of each asset class in your original allocation mix will vary, making your portfolio more or less risky than you originally intended.  Emily suggests, “rebalance your portfolio by using new contributions to purchase investments in underweighted asset classes or sell some investments that performed well until you reach your target allocation.”  Stay tuned for an upcoming post next week about choosing your target asset allocation.

Rinse and Repeat

Bookmark this post and reference it often throughout the year and you are sure to achieve your New Year’s Resolution of optimizing your investments.

For a free, easy way and objective way to find the best investments for you, visit Jemstep.com.

TAGS: behavioral investing, diversification, financial planning, investing for college, investing for income, investing for retirement