As a freelancer, my income fluctuates from month to month, which makes it difficult to get into good habits with investing. So, I’ve decided to set myself three New Year’s investment resolutions for 2022.
[top_pitch]
1. Invest regularly
I’m going to aim to invest at least 10% of my income each month in my pension fund. I’ll probably invest the majority in a global tracker fund so I can spread my risk across lots of different companies and different economies.
Investing experts will tell you that investing regularly is the key to building investment wealth. Developing good investment habits helps us to prioritise investing and squirrel away a decent amount over time.
Investing regularly is also the best way to beat the ups and downs of the stock market. That’s because if you invest every month, then you’ll sometimes buy when prices are cheap and sometimes when prices are high. If you save up and invest your money in one go, there’s a danger you will invest at a peak, just before a stock market crash. You could end up losing a lot of money.
2. Rebalance my pension
My investment resolutions include my aim to continue regularly rebalancing my pension plan. Rebalancing is where you transfer funds within your pension scheme to keep your investments in line with your investment strategy and risk profile. It’s important because more risky funds sometimes perform better and beat less risky investments. If you don’t rebalance, your portfolio could become more heavily invested in risky funds over time.
Here’s an example to illustrate the point. Jenny aims to invest 70% of her pension in a UK FTSE 100 tracker fund and 30% in a smaller companies fund. In January, she looks at her pension and discovers that her smaller companies fund has performed better than her UK FTSE 100 fund and is now worth 40% of her pension pot.
She rebalances by transferring some funds from her smaller companies fund to her UK fund so that they are invested according to her investment aims. She is banking the growth in her smaller companies fund and transferring it to the slightly less risky UK tracker fund.
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3. Reassess my budget to keep my investment resolutions
I’m going to sit down with my husband and reassess our household budget this January. If we don’t get our spending under control, then there’s a risk that I won’t be able to find enough money to put toward my investment resolutions.
Like so many families, our household costs have increased over the last year, and we definitely need to revise our budget. Our budget includes setting aside money for expected annual bills, clothes, children’s activities, holidays and Christmas spending. We also have a weekly spending budget for food and other household costs.
This year, we expect to spend more on utilities, food, clothing and petrol. Holiday costs have also increased during the past year. We also want to set aside regular money to pay for bigger household costs and car bills.
It’s important that our budget is as realistic as possible. And we will reassess our budget whenever it’s necessary. That way we’re not stuck with it for a whole year if our circumstances change.
Hopefully, if our budget is realistic and we save up for emergency costs, then I can still afford to keep my other New Year’s investment resolutions.
