As investors look to set New Year resolutions for 2014, their main focus should be on managing their emotions when it comes to financial decisions. This is according to Anil Jugmohan, an investment analyst at Nedgroup Investments, who says that one of the biggest errors amongst South African investors is that they make decisions based on emotional factors, rather than logic and reason.
“Emotion can cause investors to worry about the wrong risks or to follow other investors’ actions, which may not be appropriate for their own needs. Those who adjust their portfolios when the market plunges, or buy when stocks are high, may be doing so as a reaction to market speculation and this can negatively affect long-term investment goals.”
Jugmohan says that it is imperative to stick with your pre-defined long-term financial plans, rather than making adjustments in accordance with short-term market fluctuations.
While Jugmohan believes that managing emotions should be the primary goal for many investors, he also suggests the following tips for maintaining a healthy savings plan in 2014:
Increase your contributions
Are you getting a raise this year? Instead of upgrading your car rather look at increasing your retirement savings contributions. The long-term benefits will far exceed the short-term comforts of a new car.
Devise a debt payoff plan and avoid debt completely if possible
Debt which accumulates can result in major financial losses in the long run. People often make the mistake of spending even more on luxuries before they settle currently outstanding debt, particularly at this time of year.
Create a specific repayment plan for all debt and stick to it. Also draw up a monthly budget and check your expenditure against this at the end of the month to see where your money is going and where you can potentially find places to save.
Start an emergency fund
Financial emergencies can come in the form of a job loss, medical bills, home repairs, car repairs and more. Secure your family against the unexpected in 2014 and beyond. It’s never too late to start an emergency fund – work towards saving three to six months’ worth of living expenses. This will take some time, but the trick is to start small and build up the capital over a few months.
Educate yourself about the principles of investing
Making an effort to learn more about the fundamental truths of investing is actually one of the best investments you can make. These principles include risk vs. return, diversification, and the impact of costs and taxes over time. Also, avoid trying to time the market – instead focus on long-term results.