Quarterly Investment Guide

It's time to act on those New Year's investing resolutions

By Jeff Brown, special to CNBC.com

Nothing focuses the attention like a market rout. The Dow has already suffered its worst start to a trading year since 2008, and the stock-selling stampede looks set to deepen.

China suspended trading abruptly on its stock market for the second time this week. Markets shut within 30 minutes of opening, after a fall of 7 percent.

At the same time, stock market movers in the U.S., like Apple, Macy's and Amazon, dropped significantly with worries about everything from layoffs to slowing production and global market contraction.

Analysts are now wondering if we are at a tipping point, marking the end of the long bull market. So if you haven't made some tough new year's investment resolutions, better get to it.

New year, new money

"If you could make one resolution this new year and resolve to achieve it, make a commitment to pay yourself first," suggested Shaun Jones, wealth consultant with Diamond State Financial Group in Providence, Rhode Island. "Save at least 10 percent of your paycheck and dump it either into high-interest-paying accounts or simply where this money is out of your reach."

If the markets perform poorly in the coming year, upping that "savings rate" could be the only way to keep on track for long-term goals for retirement and college savings.

Traders work on the floor of the New York Stock Exchange.
Are you buying or selling today?

Last year was not kind to investors, but neither was it especially unkind. The Standard & Poor's 500 ended 2015 down 0.73 percent after gaining nearly 30 percent in 2013 and more than 11 percent in 2014. Bonds remained stingy, with the 10-year U.S. Treasury note yielding a mere 2.3 percent as the year ended. Bank savings, money market funds and other cash vehicles paid next to nothing.

Expert forecasts for 2016 cover the spectrum. Wharton finance professor Jeremy Siegel, author of the best seller "Stocks for the Long Run," has predicted a 10 percent gain for the S&P. Yet many others are less optimistic, and some expect a pullback, citing factors like economic slowdown in China and the age of the bull market, which began in 2009.

Now that the Federal Reserve has begun to raise short-term interest rates, many experts say bonds are risky, with rising yields likely to drive down prices of older, stingier bonds. At the same time, rates are expected to rise too slowly to make cash holdings much more generous.

Save at least 10 percent of your paycheck and dump it either into high-interest-paying accounts or simply where this money is out of your reach.
Shaun Jones
wealth consultant with Diamond State Financial Group

Investors focused on retirement and college savings are generally told to ignore short-term events like Monday's stock drop.

"A bad day in the market shouldn't scare you into selling," says Brandon Krieg, co-founder of Stash, a site that helps small investors get started.

Still, January is a good time to reassess the long-term plan, and year-end statements coming soon will make it easy to see where you stand. So here are five resolutions recommended by the pros.

1. Check your asset mix

This topic is worth a longer discussion, but for now think about whether your allocation to stocks, bonds and cash is too risky, not bold enough or just right. If you were happy with your allocation a year ago, your plan probably needn't change much given the market's flat performance. But a review may be necessary anyway after a life change like a job loss, marriage, divorce or new baby changes your tolerance for risk.

Though the broad stock market was nearly flat for 2015, some sectors had a rough time, including emerging market stocks, , energy stocks and high yield bonds, notes Charles F. Millington of Millington Financial Advisors in Naperville, Illinois. If those holdings have fallen below your target percentages, it may be wise to swallow hard and put more money in. "It takes real discipline to remind yourself why you are in an asset class after poor performance, and to stick with it," Millington says.

Traders work on the floor of the New York Stock Exchange.
Stocks close lower; worst year for S&P, Dow since 2008

2. Build cash reserves

Cash in bank savings or a money market fund won't make you rich but will be safe from any downturn in your stocks and bonds. Not only will cash provide a rainy-day fund, it will be "dry powder"— available to invest when you think conditions are better. Increasing cash from, say, 10 percent of an investment portfolio to 20 percent won't dampen your returns much if stocks and bonds do well, but it will trim your losses if they fall and help you sleep at night in the meantime.

3. Make a budget

Many people don't consider household budgeting a part of investing, but tightening spending can produce more cash for your stock and bond holdings. If investment returns will be less generous in the future, the only way to meet your investment goals will be to set more aside. Start by listing all spending, no matter how modest. "Small but recurring expenses like your morning latte can really add up," says John Rosenfeld, head of Everyday Banking at Citizens Bank.

Jones recommends automating the process by using programs like Quicken or the online service Mint.com that track investment and banking accounts at various firms. "Not only does this give you a complete picture every time you login, but it will help you easily understand how your financial decisions are changing," he says.

4. Maximize IRA and 401(k) contributions

Using these and similar accounts to avoid annual tax bills can supercharge investment gains. At a minimum, put enough into your 401(k) to get the boss's full matching contribution, else you just leave money on the table.

For 2016, the maximum 401(k) contribution is $18,000, or $24,000 for those 50 and older. In IRAs, those limits are $5,500 and $6,500. "To make the most of your IRA, you have until you file your tax return in 2016 to max out your [2015] contribution," says Rosenfeld.

A stock portfolio that's doubled index return since 1991

5. Consider a Roth

In transferring money from traditional IRAs to Roth IRAs, investors pay taxes owed on past contributions and gains, but avoid them on future gains. Now is a good time to consider this because any drop you've experienced in your holdings' values would reduce the tax bill on a Roth conversion. A key issue: do you think you could face a higher income tax rate when you withdraw money than you do today? If so, it could make sense to convert and pay the tax today to avoid a larger one later.

Most experts interviewed agreed on one piece of resolution advice: set goals you can really achieve, to avoid getting discouraged and giving up. Incremental change works best, such as boosting monthly 401(k) contributions rather than making one big investing infusion sometime during the year.

— By Jeff Brown, special to CNBC.com