Start the year off by setting financial goals

Over the next three months, we will have several articles aimed at helping you reduce your taxes for 2012 and 2013, as you prepare your material for your 2012 tax filings.

One of these articles will help you decide if an RRSP contribution is the right strategy for you, or if the TFSA should be your priority.

Today, though, I want to review some of the keys to making 2013 your most successful year ever, and also look at the potential storm clouds that could affect the investment markets over the short term related to the machinations of U.S. legislators and their budget deliberations.

I am repeating what I have said over the last few weeks, as these are likely the most important things we will share all year.

Step 1 -- Have you written down the specific, measurable goals you want to achieve in 2013? Ideally, all of these goals are steps toward achieving your long-term vision of where you want to be in three years, five years and beyond.

On the other hand, some goals -- like taking a two-week vacation in February, pre-paid from savings -- may simply be a goal in itself, or a step toward your objective of being more relaxed and leading a more balanced life.

In my book, Managing the Bull, there are some guides and exercises to lead you through this process and make it more real and effective for you.

Research shows that people who set specific, measurable goals (and build specific plans to reach them) achieve almost infinitely higher rates of success.

Step 2 -- Successful investing will be a key to you achieving your long-term financial goals.

Last week, we suggested you take advantage of the current positive market conditions to review your portfolio asset mix. This is the proportion of your investments that are in short-term (under one year) guaranteed investments, the amount in longer-term fixed-income investments and the amount you have invested in equities: shares, trust units, real estate and business ownership.

Your particular asset mix should be based on your personal situation, including your ability to withstand fluctuations, your current need for income and liquidity for the portfolio and your time horizon for these investments.

Now, while the markets are at a relatively high level, make sure your mix is appropriate for you. This means you will be able to withstand the inevitable market corrections and provide you with "dry powder" in the form of cash reserves or bonds you can use to rebalance toward equities when a market correction leaves you underweighted in equities.

The other advantage to this system of measuring and rebalancing your asset mix is that this discipline automatically forces you to sell a small portion of your portfolio when it's high and buy the other sectors when they are low.

If you take those two steps this weekend, you will radically increase your chances of success and potentially protect yourself from having to sell equities at a low point in the future to cover off cash needs you might have predicted now.

My gut feeling is that we will see some corrections in the market over the short term, but mostly caused by U.S. legislators making outrageous statements to explain why they are so intransigent in the face of facts that seem obvious to the rest of us.

However, after that, we may see a bull market fuelled by economic recovery and a gradual warming toward equities by risk-averse investors that will make our heads swim. Let's hope for that, but still be prepared for the inevitable surprises along the way.

-- -- --

For the many people who have been asking, we will be having a launch of my book, Managing the Bull, at McNally Robinson on Feb. 7. I hope you will drop by and let me inscribe and sign a book for you.

David Christianson, BA, CFP, R.F.P., TEP, is a financial planner in Winnipeg and author of Managing the Bull.

Republished from the Winnipeg Free Press print edition January 11, 2013 B11