Amid rising optimism about the economy and stock market, it's time to make New Year's financial resolutions for 2004.
Average folks make their most costly investment mistakes when times are good, not when they're bad. They catch a bad case of the euphoria flu.
Remember the high-tech bubble? Enron's "I'm-the-smartest-company-in-the-world" complex? Wall Street analysts who were lauded for touting higher and higher prices for stocks?
People felt awfully good about themselves just before they lost major money. While current markets do offer wonderful opportunities for growth and prosperity, they're not a game.
Recent scandals should make investors even more judicious. It was just a year ago that the nation's biggest brokerage firms agreed to pay $1.43 billion to resolve charges that they gave biased stock ratings.
Most recently, the $7 trillion mutual fund industry has been rocked by investigations of trading abuses in which large investors were permitted to make short-term "market timing" trades and trade fund shares after the U.S. market's close.
Top fund executives and portfolio managers have been sent packing, penalties are being paid and investors have been heading for the exits in droves. All this in an industry once considered the most respectable and investor-friendly of them all.
Here are 2004 New Year's financial resolutions well worth keeping:
I will view the stock market with caution and respect, realizing that it's neither all bad nor all good.
The market rebounded in 2003 and still offers lots of potential, but it pays to diversify because different segments prosper at different times. Just because tech is hot now doesn't mean that's where all your money should be.
Don't pull money out of stocks and put it into money markets just because there are bad days, either. Taxable money-market funds have an average yield of just 0.67 percent, half that of a year ago. Consistent investment in a variety of stocks, mutual funds, fixed-rate instruments and money markets pays off long-term.
I will pay attention to the current investment environment.
Fear of rising inflation and interest rates continues. It doesn't make sense to have too much of your money in long-term fixed-rate investments in 2004. That's because your existing bonds could decline significantly in value if rates do rise. Stick with shorter-term fixed-rate choices.
It's also important to carefully weigh recent changes in tax rates and capital gains tax when comparing taxable and tax-exempt investments for your portfolio.
I will always find out as much as I can about those handling my money.
Research all individual brokers, investment firms and mutual fund companies before you hand over any money. Monitor those you already work with. Those with the fewest regulatory problems will likely cause the fewest problems for you. Be sure you're on the same page in terms of investment strategy as well.
I will get my credit card debt firmly under control, making new payments promptly and paying off existing debt.
The average household is currently carrying $8,400 in debt, compared to $7,532 a year ago. Meanwhile, one-quarter of college students are carrying credit card balances over $3,000.
If you do need to charge, the best no-fee standard cards available nationally for consumers who pay off balances each month, according to CardWeb.com, are First Tennessee Classic Visa (1-800-234-2840) with a 6.15 percent variable rate and 25-day grace period for payment; CB&T Classic Card (1-800-543-8227) with an 8.15 percent variable rate and 25-day grace period; and HSN Classic Card (1-888-211-9095) with an 8.9 percent variable rate and 20-day grace period.
Best low-rate standard cards for consumers who carry balances are Wells Fargo (1-800-642-4720) with a 4 percent fixed rate, $79 annual fee and 20-day grace period and Pulaski Bank (1-800-980-2265) with a 4.75 percent fixed rate, $35 annual fee and 25-day grace period.
I will set money aside for a rainy day.
The number of personal bankruptcies in the fiscal year that ended Sept. 30, 2003, was a record-breaking 1.6 million. Don't have a boom-or-bust lifestyle. Always keep three to six months of salary set aside in case of an emergency, since you can't always spot financial troubles ahead of you.
Retirement investment is another important defensive measure for the long-term future. Contribute the maximum amount you can to company 401(k)s, individual retirement accounts or Keogh plans for the self-employed.
Keep the entire family informed of overall financial circumstances. It's difficult to be financially prudent if some family members feel they can spend as much as they please no matter what.
If I haven't already, I will try to take advantage of low mortgage rates to buy a home or consider refinancing.
The current average 30-year fixed mortgage rate is 5.88 percent, according to Freddie Mac in Washington, D.C., versus 5.93 percent a year ago and 5.21 percent last June. All these rates are low, and even lower adjustable options are available.
Half of mortgage loans made in the last quarter of 2003 were refinancings, the Mortgage Bankers Association in Washington, D.C., estimates. That's down from 68 percent in the prior quarter and 78 percent in March. While refinancings are declining, there's still time to snag a good rate you can live with a long time.
Andrew Leckey answers questions only through the column. Address questions to Andrew Leckey, "Successful Investing," P.M.B. 184, 369-B Third St., San Rafael, CA 94901-3581, or by e-mail at andrewinv@aol.com.