New Year’s Resolutions for Investors and Savers in 2014

24/7 Wall St.

It is a new year, and for millions of Americans that means New Year's resolutions are in order. Many of us will promise to exercise more and eat better to lose weight in 2014. Some of us will set income or sales goals, and some will set goals for what they want to buy this year. Some goals may be to spend more time with friends and family, or even to take long-needed vacations. But what about goals for your investing and finances specific to 2014?

24/7 Wall St. outlined 11 solid and achievable financial goals for investors of all socioeconomic backgrounds for 2014. Some will seem obvious. Others will be goals or resolutions that are often overlooked or seem too painful to go through with no plan in place.

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The S&P 500 index rose by almost 30% in 2013, making for the highest stock market gains in nearly two decades. It seems almost impossible to expect a repeat in the year ahead. With a new Federal Reserve chairman coming in, it is widely expected that interest rates will rise even more than they have. The good news is that the interest rate environment is still very accommodative to growth.

Gross domestic product has ticked up in the United States, and many developed markets and emerging markets seem to be getting beyond their own recessions. You rarely even hear about new bailout fears turning into implosions in the outlying nations in Europe.

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So how does all of this affect you? First and foremost, 24/7 Wall St. wants its readers (and everyone else) to continue to prosper or to get on the path toward prosperity. This requires discipline. It also requires a job and ambition to do better on your own.

Goals for investors will have a huge overlap with those of people who are just getting out of school and those who have started a new job or gone back to work. The reason for the overlaps is that it takes many of the same steps to get into a self-imposed and self-promoted path to personal financial stability and success.

We have gone into depth on each goal we would like investors, savers and professionals to consider in 2014. These revolve around valuations, cleaning up debt, savings, knowledge, dividends and interest payments, and more. While it is possible to achieve all of these, even accomplishing half of these goals is a big step toward long-term financial stability.

Here are 11 financial goals for investors and savers to consider for 2014. They are all based on market conditions as of the end of 2013 and start of 2014, so these particular resolutions will vary heavily from year to year. Some statistics were taken from the Federal Reserve, some from the Social Security Administration site and some from Statistic Brain.

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1. Bursting Your Own Bubble Mentality

You have probably heard the stock market referred to as a bubble more and more in recent months. After all, a gain of almost 30% in 2013 is hard to fathom when you consider the economic recovery in recent years. The reality is that valuations have caught back up to normalized market conditions. Companies have solid balance sheets, they are able to raise dividends and they are buying back large amounts of stock.

Some indexes and stocks around social media or other very speculative stocks can be in a bubble at any time, which may include 2014. We just want investors to understand that a market valued close to 15 times forward earnings is not exactly a bubble. Understanding this will help investors look past having missed out on many of the gains so far in this bull market. As a reminder, we have one technician still maintaining that the S&P 500 is on a long-term growth track to 2,584 before the chart top.

2. Not Being Scared of Rising Interest Rates and the End of Quantitative Easing

The common thesis for 2014 is that interest rates will keep rising. The Federal Reserve has already signaled that it plans to begin tapering down its $85 billion in monthly bond buying. Stocks actually rallied handily on the news. The 10-year Treasury note closed out 2013 with a yield of 3.03%, up more than 140 basis points from the lows seen just last May. This created losses in long-term bond funds that have not been seen in years.

So why should you not be scared to death? Because much of the rise has already been factored in. Short-term interest rates have been given the Fed promise of being kept extraordinarily low for an extended period. The end-of-year fed fund futures did not even give a full chance of fed funds rising to even 0.25% until April or March of 2015. Fed funds are not even expected to rise to 1% until the early part of 2016.

Merrill Lynch came out defending high-yield bonds and municipal bonds for 2014 despite the rising interest rate environment. Most bond strategists do not expect the 10-year to rise much beyond 3.50% or 3.75% by the end of 2014. Rising interest rates can create panic, but not when they are managed slowly and when the rise is not even up to historic normalized interest rates. Interest rates may be rising, but they are not expected to rise by too much.

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3. Paying Down Your Debt

Having high amounts of revolving debt is truly a curse. You do not get to count most consumable things you put on a Visa or American Express as assets. Imagine between you and a spouse that you have a department store credit card, three credit cards and another revolving line of credit that you did not pay off in time to still be in that "interest-free" grace period. Now take a case of having $10,000 in combined revolving credit. CreditCards.com shows that the national average of credit cards was just over 15% as of January 1, 2014. Many credit cards charge 20% and higher, which can come to $2,000 a year in interest alone without paying a penny toward the principal. That $2,000 just so happens to be more than most savers contribute into an IRA each year.

Most people cannot afford to pay off a house, and automobile finance charges are generally so low right now that it might actually be better planning to have that debt than to pay cash. Student loans remain an ongoing burden in our society, crossing above $1 trillion in 2013, and they are not even able to be wiped out in personal bankruptcy reorganization. The best rule of thumb in paying down debt is to get rid of the highest interest rate debts first. If you are paying 18% to 22% in interest, chances are high that you are not going to beat it by gambling on stocks.

4. Buying Dips in the Stock Market

Many investors have missed most of this bull market. They got spooked in the recession and went to the safety of bonds. The problem is that stocks have rallied about 175% from the market lows in 2009. Much of that was seen in 2013. What the crystal ball of the stock market seems to be signaling going into 2014 is that this market wants to go higher still. That being said, maybe you just cannot stomach chasing these massive gains that have already been seen. So wait patiently and pick up quality companies after (and if) their stocks get hit for whatever reason in the start of 2014.

Again, most major market stocks are not in a bubble, even if they are at all-time or multiyear highs. Chances are great that your bond returns have gone into the red, and many great stocks still outyield the 10-year Treasury. Many others still have great prospects ahead. Again, buying dips does not mean chasing yesterday's high-flying stocks after they sell off. This is meant to be dip-buying on the top companies in America.

5. Saving for Tomorrow

Saving for tomorrow is not the same as saving for retirement. This pertains to a rainy day fund, or to give you enough money to deal with the common unexpected things in life as they come along. A good rule of thumb for many professionals is to have six months of basic living expenses saved up in instruments that can be accessed on short notice. You might not be making much progress on your retirement by hoarding cash, but this hopefully will keep you from being wiped out the next time trouble arises or when you or a friend or family needs cash immediately.

Sadly, most Americans are just not prepared at all for any type of unexpected financial burden. The average savings account balance for a family in America is only about $3,800, according to Statistic Brain, versus more than $5,200 in total average credit card debt, according to the Federal Reserve. Another scary figure is that only some 38% of Americans currently have an emergency fund that they can fall back on (Statistic Brain again). Even if you can only put aside $50 or $100 every few weeks or months, it is a start in the right direction.

6. Saving for Retirement, Beyond Tomorrow

Saving for retirement is imperative because you just might live past 65 or 70 years old. How many people in their late sixties and seventies (or now in their eighties) can keep up with what used to be a 40-hour workweek? Some, but not most. Many Americans also want to have the same lifestyle or close to the same lifestyle in retirement as they did when they were working. Would it be blasphemy to say that this is just not reality as things stand today?

Statistic Brain showed that some 24% of American workers postponed their retirement age this year. They also showed that the average savings for retirement sits at only $35,000 per family, and also an astonishing 40% of the working Americans are not saving at all for retirement. Add in the people who are on government benefits and you have only about half of workers making any contribution to their retirement years. Now consider that Social Security shows that the average benefit per month is only $1,273.91 in retirement benefits to retired workers, followed by $637.78 to spouses of retired workers, as of November 2013.

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Saving into an IRA or 401(k) plan helps for retirement, and it can also lower your adjusted annual income when it comes to the taxes you pay. These funds grow as tax-deferred assets, so you do not pay tax on the money until you start taking it out at retirement age. Only 18% of American families are considered "very confident" about having enough money for retirement, according to Statistic Brain. It seems like the golden years may easily be the "crummy years" for most of America. Just like an emergency fund, putting even $50 and $100 here and there is a start in the right direction.

7. Understanding your ETFs and ETNs, Once and For All

Investors have grown to love exchange traded funds in recent years over the traditional mutual fund. Fees are generally lower than many mutual funds, and there is the ability to buy or sell at a known price on any given day rather than an end-of-day print. Still, many investors have no earthly idea what their exchange traded fund or exchange traded note actually does to create its investment returns.

When investors buy into mutual funds, they by and large own they underlying assets in a fund. When it comes to ETFs and ETNs, that may not be the case. The triple-leverage and double-leverage ETFs were very popular when stocks were moving, because traders and investors thought that if an index would rise by 10% then they could make 20% or 30%. The problem is that these often have price erosion or decay each day or each reset period. Many of the key holdings inside some ETFs are forms of derivatives or securities swaps, leaving all the risk on the investors as fund management teams try to replicate whichever index they are trying to track.

Another risk comes in the form credit risk. When Lehman Brothers went belly up, many exchange traded note holders found out the hard way that they were not investing in securities. They became creditors with claims in bankruptcy court, not knowing whether they would get their money back. Investors need to make sure that 2013 was the last year ever that they do not understand the risks and formal investment strategies of their ETFs and ETNs.

8. Being Aware of Mutual Fund Marketing Gimmicks in 2014

With gains of close to 30% for the stock market in 2013, investors may become mesmerized by historical performance of many equity mutual funds. Some fund managers may be able to show that their gains were 40% or even more in stock funds. But something worse is about to roll into your mailboxes and advertisements: astonishing gains of 150% or 200% in the past five years!

The stock market hit a crush-depth bottom in the first quarter of 2009. When you compile a gain of 30% or so in 2013 and a total gain of about 175% since the bottom five years ago, some mutual fund managers are going to look like rock stars. If you want to invest in a mutual fund, do it because the fund's investment objective meets your own goals. If you just chase a fund because it now has great five-year returns, please do not blame Wall Street trickery over your own lack of accountability that your gains in the next five years seem disappointing.

9. Managing Tax Efficiencies

We now live in a world where you are charged higher tax rates if your income is above certain thresholds. That means that getting tax-deferred or tax-free investing returns helps the privileged investors. If you will be right up against a higher tax bracket, this means that you may want to manage your tax efficiency much closer than in the past.

The simplest method of managing taxable income may simply be municipal bonds and municipal bond funds. Many of these funds took serious losses in market value in 2013, more than 10% in many cases. It was as if the investment community decided that the municipal bond market was going to get wiped out with a rise in interest rates. It may simply be that most of the losses were factored in ahead of time.

Other tax efficiencies revert back to putting money into 401(k) and IRA accounts. This lowers your adjusted income and defers taxes until retirement. Other tax efficiencies revolve around gifting, college savings, annuities and insurance, and many more vehicles. The best thing you can do is to have a tax professional look over your finances either before, during or after a meeting with an investment professional.

10. Creating Long-Term Financial Goals

If you have a somewhat clear picture of your income for the years ahead, chances are high that you can create a long-term financial plan that can be stuck to. Most homeowners in the country are no longer buried in houses. Most market losses have been recaptured. That means that creating a long-term plan financial plan now, even if it is years late, is perhaps easier to stick to than ever.

Some of the basic questions will be around your retirement, such as when you intend to retire, whether you plan to still work some in your retirement years, where you want to live, what you want your lifestyle to be in retirement and many additional goals. Many savers and investors never come up with long-term goals, even if they have short-term goals in hand.

Hopefully these long-term goals revolve around how you can be financially independent and self-sufficient. We have created a plan recently about what to do (and not do) if you win the lottery, but certainly you know that the odds there are more than a long-shot.

11. Lastly, and Most Importantly, Setting a Personal Budget

If you want to make saving for tomorrow and retirement as painless as possible, the best way to do this is to sit down and give your spending habits a serious review. Maybe it turns out that you spend way too much eating out. Maybe you spend too much at the bars or on other forms of entertainment. Maybe you spend $10 each morning for coffee and breakfast, or ditto on lunch. Maybe your cellphone bill or your monthly media bills are far more than they need to be.

Whatever your goals are, once you analyze your spending habits it becomes easier to find money to use for your goals that you did not realize was there. After all of this is determined, then you need to do your best to stick to your budget. By sticking to that budget, you might be able to save for a rainy day, save for retirement and still have a chance of accumulating assets.

If you look over a piece we did on how Americans waste the most money, it may be a good start on where to find areas to cut discretionary spending.

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There are many other goals that we simply could not address without this becoming an e-book. Paying for new training is a must for many who are just going back to work. Many students (and their parents) still have to deal with a job market that just is not favorable to new entrants with no experience.

The new health care laws are also a huge issue to consider, but most Americans are still trying to figure out that debacle. How this ultimately plays out is still guesswork, even for insurance experts.

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One last goal that we want you to consider is something far too general and arbitrary to list as a fixed goal for any one year alone. Quite simply, it is to think about how you would live when and if you are wealthy -- not about the great toys you can buy, but about how you will handle your finances and plan for your future.

Warren Buffett claimed that he always knew he was going to be wealthy. Maybe you cannot be Warren Buffett, but if that mentality was good enough for him maybe it is good enough for any of the rest of us.

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