It's time once again for New Year's financial resolutions.
1995 offers an opportunity for Americans to adjust to the dramatic trends started in 1994, such as the Federal Reserve's continuing interest-rate boosts and a Washington political agenda that emphasizes easing of tax burdens.
Lessons hopefully have been learned about the gambling-like risks associated with derivative securities. The negative impact of rising rates on bonds has been brutally driven home.
In addition, investors concerned about market credibility will now watch the unfolding of the government investigation into trading practices on the Nasdaq stock market.
This is the time to reassess your financial goals and portfolio, because each year is unique and requires fresh consideration.
The savvy investor with diversified holdings who doesn't lurch suddenly from one vehicle to another out of sheer panic can indeed prosper. Nonetheless, seldom has one's resolve to stay the course been so tested as it has been recently.
Here are New Year's financial resolutions worthy of consideration by folks wishing to avoid money mistakes of the past:
* I will pay off my credit card debt. Card rates are being adjusted upward this month to reflect increasing interest rates throughout the economy.
You'll never make up the difference between credit and saving ** rates, so avoid having large amounts of debt revolving at high rates when January bills for holiday shopping come due. It's likely that the Fed has still more rate increases up its sleeve for 1995.
* I will look for the best credit card deals. For example, the lowest-rate bank credit card available nationwide was recently Signet Consumers Best, Richmond, Va., featuring a 6.40 percent variable rate with $29 annual fee and 25-day grace period for payment, according to RAM Research of Frederick. Meanwhile, the best no-fee credit card for consumers paying off their balance each month was AFBA Industrial Bank, Colorado Springs, Colo., at prime rate plus 2.9 percent with 25-day grace ++ period for payment. Shop for the best deal for you.
* I will not panic over market uncertainty, but will remember to keep a portion of my investments in long-term growth vehicles, such as smaller-company stocks and mutual funds that emphasize them. After several subpar years, these should be poised for better times. International stock funds, though hit by volatility in countries such as Mexico in the past year, are still a valid diversification.
Too often, investors jump out of vehicles at the worst times, accepting big losses and transaction fees when patience would have been a virtue.
* I will examine tax-exempt investments. Rising interest rates have hammered bond markets because the value of existing lower-rate bonds was diminished. Nonetheless, municipal bonds and municipal bond funds of moderate duration make sense for investors in higher tax brackets seeking to blunt the effects of the tax man. Based upon your circumstances, tax-exempt money-market funds also look good.
* I will not overlook the obvious, but will consider bank certificates of deposit, money-market funds and Treasury bills for a portion of my money. The yields are rising and these choices make sense for a more conservative portion of your holdings, particularly if market vagaries are giving you butterflies in the stomach. Yet keep firmly in mind that over the long haul, such choices won't do as well as a well-planned stock portfolio.
* I will scrutinize my entire investment portfolio to see if holdings are appropriate. Consider whether an investment has met the goals you initially set for it and decide whether it would be vulnerable in the future. Examine a fund's portfolio to determine whether the manager uses some of the riskier derivative securities in it.
* I will put money aside for a rainy day. Even economic improvement doesn't mean job cuts are behind us. Keep three to six months of salary aside in case of emergency. A regular savings and investment program is crucial as this nation undergoes painful restructuring of its industries.
* I will contribute to company 401(k) retirement plans, Keogh plans for the self-employed or individual retirement accounts, whichever apply. Retirement concerns are enormous for Americans. Variable annuities are another avenue for stashing away money for retirement after you've exhausted the other deferral choices first.
* I will plan as soon as possible for the education of my children. The sooner you start stashing money aside for college educations, the less strain there will be once youngsters approach college age. Build a diversified portfolio using regular monthly contributions.
* I will put my financial house in order by making a will and making sure family members are generally aware of family investments. You owe it to all of them, especially your spouse, in this new financial year.