- If you don't have a financial plan, the very first thing you should do is write one and sign it. (My book The Only Guide You'll Ever Need for the Right Financial Plan can help you create one.) The financial plan should include not only an investment plan, but an estate plan as well. If you have a plan, review and update it. Make sure the beneficiaries on your IRAs, Roth IRAs, 401(k)s, life insurance and annuities are correct, and make sure all financial accounts (including those held in a trust) are properly titled.
- Review your important records and files with your spouse and/or adult children. This means showing them where the records are kept and what they contain, including what's written in your will. This may be especially challenging if the children aren't treated equally, but you should explain the basis of your decisions. This can avoid tremendous problems later.
- Write down the procedures, Web sites and passwords to your bill pay system, and share them with your spouse if he or she isn't aware of them.
- Make sure your investment plan is appropriately tailored to your ability, willingness or need to take risk.
- Make sure you have enough cash or highly liquid and safe assets to meet emergency needs, so you're not forced to sell investments, possibly at the wrong time (during bear markets).
- Check for rebalancing and tax-loss harvesting opportunities throughout the year (on at least a quarterly basis).
- Fire your advisor if he or she doesn't provide a fiduciary standard of care, and hire one who does.
- Make sure you're protected from a Bernie Madoff situation. Separate the services of financial advisor, money managers, custodian and trustee.
- Don't invest in any security if you don't fully understand all the risks, and especially avoid interesting investments. They're the surest way to both turn a large fortune into a small one and to transfer assets from your wallet to the wallets of the purveyors.
- Avoid all actively managed funds and repeat to yourself: "Past performance has no value whatsoever as a predictor of future performance."
- Don't stretch for yield, and don't confuse yield with return as they're often quite different. Remember, the main role of fixed income is to reduce portfolio risk to an acceptable level.
- Ignore all "expert" forecasts, recognizing that they have no value.
- Don't buy any individual stocks or sector funds, as that's speculating, not investing. If you own any (especially if you have a large, concentrated position on a single stock, such as that of your employer), develop a plan to dispose of them as quickly as possible.
- Keep a diary of your predictions, and review them every year. That'll help you avoid acting on your instincts in the future.
- Adhere to your plan, regardless of what the market does. Commit to not allowing emotions to cause your plan to end up in the trash heap of emotions.
- If you have to watch CNBC, make sure the mute button is on.
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Hear Larry Swedroe discuss current investment trends and topics every Sunday at noon on 550 AM KTRS in St. Louis or streaming via the KTRS Web site. Can't catch the show? Download the podcast via www.investmentadvisornow.com or through the Buckingham Asset Management podcast page on iTunes.