|
Greetings! Year 2010 was a very good year in the markets and for our portfolios. The S&P 500 started the year at 1,116.56 and finished at 1,257.64 or +141.08 points; the NASDAQ started at 2,294.41 and finished at 2,652.87 or +358.46 points; and the DJIA began at 10,430.69 and ended at 11,577.51 or +1,146.82 points. (Yahoo Finance) It always feels nice at the end of a good year like that; especially when you contrast it with how we felt January 2009 when the world was filled with so much uncertainty. Much better!
With 2010 history, 2011 is right in front of us and January is a great month to wipe the slate clean and start anew. The stock markets are faceless arbiters of human actions. But our portfolios are influenced by the market in only marginal ways--up 10% or down 10% it's either facing a head-wind or a tail-wind. The real determiner of wealth and financial security however is our personal behavior. Over the long run the market will treat us fairly and our returns will for the most part be positive; but our behavior, now that is where we have some control.
So as we settle down from the holiday craziness many of us make New Year Resolutions. A brand new calendar page gives everyone a chance to begin a healthy new habit, or perhaps the motivation to finally give up a nasty one, like smoking. (I gave up smoking 18 years ago and have become one of those pesky anti-ex-smokers who routinely gets on the nerves of those who still partake.) Anyway, since I am in the financial planning business lets talk about a financial habit that I really believe in; automatic investing on a monthly basis, or sometimes called dollar cost averaging (DCA).
Just by filling out a form and sending in a voided check you can start making monthly investments to your IRA, ROTH IRA or investment account. I think that once you make a commitment to pay yourself first, be it in an IRA, 401K or just a plain old investment account you are on your way to taking control of your financial health. (IRA investments have restrictions so realize that once the money goes in you must leave it there until your at least 59 1/2 years old.) For 2011 the limits on Regular IRA's and Roth IRA's are $5,000 per year or $6,000 if you're over 50 years of age. $5,000 per year is just $416 per month and $6,000 is $500 per month. There is no limit on how much you can put into your investment account per month. And by investing every month you really don't need to worry too much about what the market is doing throughout the year--you're buying when it's down, you're buying when it's up and you're buying when it's doing nothing at all. In the end you're getting shares of your investment at the year's average price. By making monthly investments you have become a disciplined investor; but the secret is you only had to be disciplined once--when you filled out the form to started your systematic investments. Note, not everyone can contribute to their IRA, we still have upper income limits that prevent people from saving tax-deferred or tax-free, so shoot me an email if you think you're close. However, most income limits do not apply to retirement accounts through your employer. Or, if you're self-employed you can start your own retirement plan. And of course, if you work for a small company you can encourage your employer to start one. So for New Years 2011 get off on the right foot and start paying yourself first--personal financial security is all about personal behavior. Marty Dollar-cost averaging does not ensure a profit or protect against a loss in declining markets. Dollar-cost averaging involves continuous investment in securities regardless of the fluctuating price levels of such securities. Investors should consider their financial ability to continue making purchases through periods of low and high price levels. | 
