"Resolutions" written on a piece of notebook paper (Image: Wikimedia Commons Public Domain) (Image: Wikimedia Commons PD)

New Year’s resolutions are an age-old custom. Unfortunately, most resolutions are broken within a few weeks of the start of the year. It may be hard to stick to New Year’s resolutions, but advisors should consider resolutions that can help reduce stress and improve investment performance:

1. Go on a “media diet.”

“News junkies” often obsess over the latest headlines. The activity bias is a common behavioral pattern among advisors who find themselves glued to business news during the trading day. Excessive trading can be one of the more damaging investment behaviors, so consuming less business and political news may be a healthy resolution for those who find themselves binging on the latest tweets, broadcasts and articles.

2. Be realistic about political promises.

Government policy is a major factor influencing investment performance. Political rhetoric, particularly in an election year, can create significant market volatility. Political platforms are aspirational in nature, reflecting the preferences of the candidate and the candidate’s supporters. After being elected to public office, however, constraints tend to be the more relevant area of focus for investors.

The trade war between the U.S. and China is a good example of constraints ultimately prevailing over preferences. Although President Donald Trump may have “preferred” to escalate trade disputes with China for the remainder of his first term as president, the risk of higher unemployment and lower economic growth created a constraint that forced him to deviate from his personal preference and declare a truce with China.

The same trade-off between preferences and constraints will be relevant if a Democratic candidate is elected president in 2020. The Green New Deal, Medicare for All or free college education may make for good campaign talking points but will face obstacles that constrain future actions. Advisors should resolve to understand the trade-offs between preferences and constraints, incorporating that understanding into investment decision-making.

3. Spend less time in “echo chambers.”

Confirmation bias is the tendency to seek evidence that supports preexisting beliefs, and to interpret information in a way that supports an existing position. The echo chamber that comes from avoiding contrary viewpoints can lead to costly investment mistakes. Seeking contrary points of view is a necessary step in testing an investment point of view, and an important (albeit uncomfortable) resolution for 2020.

4. Take a critical look at your portfolio.

The new year is a good time to evaluate investment holdings. Advisors should evaluate whether recent winners will have staying power or merely benefited from a favorable market environment. If recent success isn’t sustainable, it may be desirable to look for opportunities to upgrade the holding to an investment with superior prospects.

The same analysis should be applied to less successful positions. Evaluating whether losing positions are likely to recover is a critical aspect of portfolio management. Oftentimes, recent laggards are tomorrow’s leaders.

But some investments that seem cheap today can get a lot cheaper! In an environment in which technology-enabled disruption is ubiquitous, it is important to be vigilant about winning and losing investment holdings.

5. Ask the right question.

Investment discussions in January are dominated by forecasts for the coming year. The most common question is: “What do you expect the market to do this year?” Although the natural impulse is to focus on the one-year outlook, for most investors the focus on a relatively short-term time horizon is counterproductive. For 2020, investors should have a budget for known cash needs and an emergency reserve for unexpected cash needs. The investment portfolio should be structured to provide for those near-term cash needs, while investing the remainder of the portfolio to achieve the investor’s long-term goals.

Consequently, the more relevant discussion about the investment outlook should be framed around long-term investment expectations and the alignment with financial and personal goals. Realistically, once cash needs are taken care of, most investors have time horizons measured in years if not decades. The incredibly unreliable directional “crystal ball” for one-year periods becomes a lot more reliable over longer periods, making planning a more predictable and less stressful exercise. Consequently, perhaps the most important resolution is to think with the long term in mind and worry less about day-to-day volatility.

6. Read a book.

The last suggested resolution to start the year is: Read a book! There are several books that provide sound advice about how to be a more self-aware and effective investor. Daniel Kahneman was awarded a Nobel Prize in 2002 for findings that challenged assumptions of human rationality prevailing in modern economic theory. Kahneman’s Thinking, Fast and Slow summarizes decades of research and explains modes of thinking that influence decision-making.

Investor and Columbia Business School adjunct professor Michael Mauboussin has done considerable work on behavioral finance and on assessment of success and failure in investing. Mauboussin’s The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing provides insight into the role the role that both skill and luck may play in investment success and how to better distinguish between the two.

University of Pennsylvania professor Philip Tetlock writes about the intersection of psychology, political science and organizational behavior, and is the co-creator of the Good Judgment Project, a multi-year study of the feasibility of improving the accuracy of probability judgments of high-stakes, real-world events. Tetlock’s Superforecasting: The Art and Science of Prediction (co-written with Dan Gardner), provides invaluable insight into ways to improve forecasting results.

Crashed, written by economic historian Adam Tooze, provides a reinterpretation of the global financial crisis that is an important read for advisors seeking greater understanding of the past and perspective on future risks.

Staying on track with resolutions is easier said than done. The likelihood of staying on track is higher for people who make themselves accountable for their resolutions. Sharing resolutions with colleagues or friends is one way to keep on track. The risk of embarrassment can be a powerful motivator! It helps to put resolutions in writing and keep them in a visible place as a constant reminder. Establishing some sort of reward system can also be helpful — meaningful accountability for success or failure can provide the incentive to stick with difficult behavioral changes. Making and sticking to New Year’s resolutions may not guarantee investment success in 2020, but is likely to increase the likelihood of long-term success.


Daniel S. Kern is chief investment officer of TFC Financial Management, an independent, fee-only financial advisory firm based in Boston.

Prior to joining TFC, Daniel was president and CIO of Advisor Partners. Previously, Daniel was managing director and portfolio manager for Charles Schwab Investment Management, managing asset allocation funds and serving as CFO of the Laudus Funds.

Daniel is a graduate of Brandeis University and earned his MBA in Finance from the University of California, Berkeley. He is a CFA charterholder and a former president of the CFA Society of San Francisco. He also sits on the Board of Trustees for the Green Century Funds.