Five Investing Resolutions To Make For 2024

Five Investing Resolutions To Make For 2024
Stéphane Renevier, CFA

about 2 months ago6 mins

  • To become a smarter, better-informed investor in 2024, you could resolve to learn about a new asset class (say, bonds) and get your hands dirty playing with a model or crunching some numbers yourself.

  • You could also aim to manage your emotions better and make a habit of seeking out opinions that contradict your own.

  • Last, but not least, you could aim to create a better tomorrow by not just considering the potential returns of an investment, but also its impact on society and the environment.

To become a smarter, better-informed investor in 2024, you could resolve to learn about a new asset class (say, bonds) and get your hands dirty playing with a model or crunching some numbers yourself.

You could also aim to manage your emotions better and make a habit of seeking out opinions that contradict your own.

Last, but not least, you could aim to create a better tomorrow by not just considering the potential returns of an investment, but also its impact on society and the environment.

The new year is when people start to think about turning over a new leaf. And, if you’re investing, you’re going to want those leaves to be the green, profitable kind. So, to start your year off right, here are five resolutions you can make to become a smarter, better-informed investor.

Manage your emotions better.

Your biggest adversary in the long-term investing game isn’t market downturns or even finding the best investments. It’s, well, you. Or more precisely, it’s your emotions and behavioral biases. Your fear of missing out makes it more likely that you’ll buy an investment when it’s at its most overvalued and set to provide low future returns. Your loss aversion, meanwhile, makes it more likely that you’ll sell your investments at the worst possible time – just after a rough patch and just before the market rebounds. And your confirmation bias makes you more likely to focus only on information that supports your existing beliefs while ignoring any warning signs.

While you can’t cut your emotions out, you can resolve to manage them better. Start by getting to know the different biases that might trip you up. Our guide on behavioral investing can help, and so can books like Thinking, Fast and Slow, and websites like BehaviouralFinance.net.

Next, develop a more systematic approach to investing. This could mean using a checklist to guide your decisions, including assessing whether the decision is driven by emotion or rational analysis, ensuring that the investment aligns with your long-term financial goals, having a clear exit strategy, and being aware of any personal biases that might influence the decision.

Consider setting some clear rules for your investments. For instance, you might decide to invest only in companies whose business model you actually understand, or those that trade with a certain margin of valuation safety. You could also set some guardrails: deciding in advance the maximum amount you’re willing to lose on a trade and when not to sell.

Last (but not least), consider keeping an investment journal – recording your decisions and your rationale. It’ll help you understand the emotions that pose the biggest threat to your investments and help you track your improvement over time.

Get to know another asset class.

There’s more to investing than stocks – and expanding your knowledge across asset classes can make you a better investor. Assets like bonds and commodities can not only provide you with more opportunities for generating returns, but they can also reduce the overall risk in your portfolio, as they perform differently than stocks. Understanding other asset classes might even help improve your stock strategies: for instance, bonds are influenced by interest rates, which are a key driver for stocks too, so becoming knowledgeable in that area can give you a more holistic view of the investing world.

You could resolve to get more comfortable with bonds in 2024, starting with gaining a better understanding of corporate and government securities. This means figuring out what drives them, what role they may play in your portfolio, and which ones look particularly attractive right now. You could even leverage an AI tool like ChatGPT to turn the things you read into an investment masterclass. And don’t forget to share what you learn – sometimes the best way to learn about something is to explain it to someone else in simple terms.

Don’t be afraid to get your hands dirty.

Sure, poring over research reports can be insightful, but the real magic happens when you start crunching those numbers yourself. It’s only when you dive into some stats, play with a financial model, or comb through a company’s financial statements that you really grasp what’s going on. Getting your hands dirty in this way can help you turn theoretical knowledge into practical, quantifiable data, allowing you to build a more solid case for or against an investment.

One thing you’ll realize is that financial models are built on assumptions – some of which are merely speculative. You’ll also likely come to see the strengths and weaknesses of different methodologies. And once you understand how something works, you can apply it to different cases and conduct valuable sensitivity analysis. That can make you a more confident investor: knowing that you’re no longer just part of the herd, relying on others’ interpretations. Instead, you’re forging ahead with your own informed investment decisions.

So consider setting a resolution to delve deeper into a particular area. You could try to value your favorite stock using some simple valuation concepts (it’ll take less than a minute), for example, or use this hedge fund manager’s “magic formula” to identify potential investment ideas.

Seek out contrarian opinions.

When your money is at stake, your brain can be the worst kind of “yes-man”, homing in on signs that support your thinking and drowning out everything else. And that means you could miss an important piece of the investment puzzle and cling to assumptions that are off base (this certainly happened to me last year). That’s why investment bigwigs like Ray Dalio flip this script, actively hunting down viewpoints that challenge their point of view. They understand the value of questioning what you think you know and identifying what you may have missed or misunderstood. It’s a way to make sure your investment ideas are rock solid.

So this year, when you’re scrolling through financial news, keep an open mind. Try to understand the contrarian argument. Better yet, challenge yourself to identify at least three major threats to your current investment stance, or even build a case for the opposite viewpoint. This approach can help supercharge your critical thinking and lead to a more thorough, well-reasoned investment plan. It’s all about being intellectually nimble when the only constant is change.

Help create a better tomorrow.

Your portfolio’s main job is to grow your wealth, but it also has the potential to make a positive impact on the world. That’s what ethical investing attempts to do: it’s about considering the societal and environmental impact of the assets you buy. And sure, a lot of the “sustainable finance” products that are accessible to retail investors – like ETFs with an environmental, social, and governance (ESG) focus – are far from perfect. But that doesn’t mean there’s nothing you can do. You could, for example, come up with your own definition of what makes a company “ethical”, and use it to take a closer look at the ethical profile of your portfolio. If your investments fall short of the standards you set – like championing sustainability and fair practices, for instance – you could decide to rethink your choices.

So as you step into this new year, you could resolve not just to avoid companies that do harm, but to actively seek those that make a positive impact. You can dig deeper with our articles on socially responsible investing and impact investing. Shifting your focus to the broader impact of your investments could be the most meaningful resolution you make this year.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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