It’s the time of year when many of us make an effort to do better—eat healthier, exercise more, try something new. As the holiday bills come rolling in, financial goals may be on your mind as well. In a recent message to clients, I touched on a few investing resolutions to keep in mind this year. None of these resolutions will come as a surprise to our clients, but my hope is more investors will take these themes to heart in 2016 and stay focused on the aspects of investing they can control.

Save more and pay less. The most important (and difficult) step you can take to shore up your financial future is to save more than you think you’ll need. Today’s investing challenges require a renewed commitment to saving. We’re living in a slow-growth world, and Vanguard expects investment returns to be modest in the coming decade. For example, a 60% equity/40% bond portfolio has earned an average return of 8.6% since 1926. We expect the central tendency of returns for that same portfolio to generate a 5%–7% return over the next ten years. When you take inflation into account, the average real return falls into the 3%–5% range.1

You can’t control market returns, but you can control how much you pay to invest. Think of cost as a percentage of your return that you give away. If your fund returns 4% but charges a 1% expense ratio, then you lose 25% of your return to fees. Every dollar you save in fees is a dollar that you keep.

Stay balanced and diversified. Market volatility is always with us. Many of the conditions that contributed to fragility in 2015—sluggish global growth, geopolitical events, and economic uncertainty—will continue to influence the markets in the years to come. You can temper the effect of volatility by staying balanced among stock, bond, and money market funds, and by being diversified within those asset classes. It’s worth emphasizing that even in a time of low (and rising) interest rates, bond funds can bring an important element of stability to a portfolio.

Stay the course. Sounds easy, but we know otherwise. It never feels good to watch the markets go down, but it’s also part of being an investor. Despite what some pundits might say, no one can accurately time the highs and lows. Avoid the temptation to make changes to your portfolio in response to ever-changing market conditions.

If you find yourself struggling to stick to your financial plan (or if you need help getting started), take advantage of resources that can help you stay on track. From target-date funds that have built-in asset allocation and rebalancing to financial advice, investors don’t have to go it alone.

On the surface these financial resolutions may seem simple, straightforward, and a little bit boring, but staying with them in good times and bad can be hard. As with any ambitious goal, start small and celebrate progress. We’re here to support you every step of the way.

1Source: Vanguard economic and investment outlook, December 2015.

Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • Investments in bonds are subject to interest rate, credit, and inflation risk.
  • Diversification does not ensure a profit or protect against a loss.
  • Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.