My Resolutions

A few weeks into the New Year, it’s not uncommon for New Year’s resolutions to have gone by the wayside. But surely the tradition of reflection and resolve that they embody has merit. We should at least aspire to thoughtful consideration and hope we might do better going forward.

Accordingly, I present some resolutions for the New Year that I hope will find wide agreement among readers. May we actually fulfill them! 

Demand simple but meaningful honesty. MarketWatch recently ran a piece claiming that “beating the market is easy.” Full disclosure: I am a MarketWatch contributor. The thrust of the claim focuses upon various sectors and approaches—such as small caps or value—that have beaten the S&P 500 index historically as well as suggesting that investors use leverage and lower-fee products. While strictly accurate, the claims are misleadingly so because the comparisons are all of an apples-to-oranges variety.

Suggesting that one can readily “beat the market” by taking on more risk via volatility and leverage is hardly a meaningful recommendation for most investors and especially for those —the target of the article—who are engaged in retirement planning. Moreover, defining “the market” as the S&P 500 and pointing out that various other indexes can and do outperform it historically isn’t very helpful either. For performance measurement to have value, one must use an appropriate measuring stick. Even if (when!) it doesn’t make us look great, let’s offer and demand meaningful honesty.

Address issues head-on.  As I have noted repeatedly in this space, our nation faces a serious retirement crisis. Few of us have planned well enough and few of us are saving enough to expect to live a comfortable retirement. These undeniable facts demand that we face some serious personal and policy challenges.

The defined contribution landscape—never intended as a stand-alone retirement solution—isn’t working nearly well enough. Some more fundamental and far-reaching choices deserve careful consideration. These include mandatory retirement saving, portable pensions, and comprehensive Social Security and Medicare reforms. What we are doing at present isn’t working. Accordingly, some difficult policy choices we might not otherwise prefer or endorse need to be considered.

Acknowledge reality. Our behavioral biases are alarming in their scope and impact. They can be astonishingly difficult to perceive and overcome. Yet because of what’s called the “bias blind spot,” even when we recognize these biases, we tend to think that they apply to others but not to ourselves. For 2013 and beyond, let’s all resolve consciously to try to acknowledge and deal with our biases on a consistent and comprehensive basis. 

Embrace personal accountability. Because of our behavioral biases, it’s also easy for us to take credit for our successes while blaming our failures and failings on bad luck. Let’s instead resolve to be accountable for our choices and our actions, even (especially!) when they do not work out well. In one way or another, we would all like to privatize our gains and socialize our losses, take credit for success and blame failure on somebody else. Stop! We all know a lot less than we think. 

Insist on effectiveness. Too many of our planning and investment choices are based upon ideological commitments of various sorts. Whatever our market “schools,” economic and political preferences and party persuasions, we all tend to act first and ask questions later. Let’s demand instead that the choices we make actually be predicated upon good data and evidence such that what we want to achieve has a reasonable likelihood of actually happening. As the saying goes, we are all entitled to our own opinions, but we are not entitled to our own facts.