New Year Financial Resolutions: A Fresh Start
Whether you call them resolutions, goals, or even just a yearly review, it’s important to go into the new year with a full sense of your investments—both good and bad.
As we look ahead to 2022, there are a few financial resolutions investors can take to help optimize their portfolio, safeguard against risk, and improve overall financial well-being. Whether you’re looking for new opportunities or merely a sense-check of your portfolio, there are plenty of ways you can set financial goals for the new year—and beyond.
Here’s what you need to know about updating your investments in the year to come.
Rebalance Your Portfolio
The first (and perhaps most important) step in reevaluating your portfolio is checking if it’s balanced. By that, we don’t mean its actual financial total, although that’s important as well. Balance in this sense refers to your asset allocation—the percentage of funds you have in different kinds of investments.
You might be familiar with the 60-40 rule of investing, which is the notion that most portfolios should dedicate 60 percent of their holdings to stocks and the remaining 40 to bonds. According to a sizable number of investment professionals, the 60-40 rule is outdated, but it does help demonstrate how you can think about the balance of your assets across different investment classes.
When you rebalance your portfolio, think about your long-term investing goals, risk tolerance, and the timeframe in which you want to hold your investments. Rebalancing your portfolio might mean introducing more diversification among asset classes, especially if there are some that you’re missing. A robust mix of long- and short-term investments, as well as those in liquid and illiquid holdings, are key when rebalancing your positions. You should also be sure to rebalance as you hit different investment milestones, particularly if you’re investing for retirement.
Prepare for the Unexpected
As we witnessed in 2020 & 2021, nothing is for certain—particularly with regard to the markets. The COVID-19 pandemic began with a market free-fall, only to see the markets soar beyond historical highs. The global economy grapples with inflation at the end of 2021 that, without drastic improvements to the world’s supply chain and other seismic shifts, could create financial woes that stretch into 2022. In other words, economic headwinds are harder than ever to predict.
They don’t, however, have to be impossible to safeguard against. It’s important for investors to do what they can to be proactive with their portfolio, even if we can’t time the markets. This means diversifying, seizing new opportunities, and hedging against exposure to volatility in your portfolio.
Everyone’s portfolio is different, of course. In most cases, it’s crucial to hedge against the main drivers of market volatility, especially when markets—be they financial or consumer—are erratic. Inflation is on the rise and may be so for the foreseeable future, for one example. This means any inflation-exposed investments, such as those in retail companies or other consumer goods providers, could end up dragging or losing value. To safeguard against this, it’s important to have the right countermeasures in place.
A hedge against inflation can go a long way here. One of the best hedges against inflation is within real assets. These typically take the form of real estate, commodities, or other tangible assets that appreciate outside of the stock market. Real assets can offset potential instability when stocks are shaky and bonds don’t deliver value in a low-interest environment. With these two factors on the minds of investors going into 2022, it’s more important than ever to prepare for their impact—among other potential phenomena in the year to come.
Commit to Learning More about a New Investment Opportunity
There are more investment opportunities than ever before. This new year, consider learning more about an investment type you may not know much about already. If you’ve heard about NFTs, cryptocurrency, or more commonplace alternative investments but have no idea what they are and if they’re a fit for your portfolio, this could be the perfect opportunity to learn more.
Some investment types are net-new, such as Bitcoin and non-fungible tokens that prove ownership of digital assets. Others are new versions of previously out-of-reach investment types, such as farmland, that tech-forward companies have made more accessible for a broader array of investors. Each has its merits and risks as well as plenty of reasons why they’re worth exploring in more detail.
Many investors are paying increased attention to the opportunities provided by fractional ownership. Online platforms make it possible for investors to own a fraction of an asset, rather than the entire thing. This has made many investment types approachable for the first time, particularly if it was too expensive to own them outright in the past (such as farmland or fine art).
The 2020s will be a defining decade for climate action. With a majority of investors looking to use their dollars to drive impact, 2022 will be a year of continued growth within the ESG sector. Environmental, social, and governance-driven investing will likely dominate the conversation in 2022 and beyond—especially as ESG funds have outperformed their non-ESG counterparts for the last three years.
ESG was once a “nice to have” element of one’s portfolio. Now it's considered by many to be an essential part of any investor’s holdings. There are numerous different approaches to ESG investing as well, each offering a different level of exposure to businesses that have put these beliefs at their core. ESG funds are one option: investing funds dedicated to ESG-certified companies can provide you with broad exposure to this area of the market. Other kinds of investments, such as those in sustainable agriculture through farmland investing, can give you a front-row seat to real change with your investing dollars.
No matter your comfort level or knowledge of the world of ESG investments, there’s likely to be an option out there that’s right for your portfolio. The most important thing you can do as an investor is learn more about why ESG is on the minds of the majority of investors. From there you can assess what’s right for your portfolio. In many cases, you may be able to make the most of your ESG investing dollars through fractional ownership—particularly in opportunities that put your money at the front lines of combatting the world’s most pressing issues. Farmland investing is one of the biggest sectors for ESG, meaning it could be an excellent fit for your portfolio when you’re looking at how sustainability plays a role.
Broaden Your Horizons
Investing can be intimidating, whether you’ve got a few hundred to put in or hundreds of thousands of dollars to allocate. It’s crucial not to be overwhelmed by your portfolio or the investments you might not have in your portfolio yet. That’s why it’s critical to expand your knowledge of current investing trends, especially if there are opportunities out there you’ve yet to explore.
The era of stocks and bonds being the dominant investment vehicles is over. Investment funds spurred a revolution in investing that made it easier for the average investor to capitalize on broader market exposure with less hands-on management. Now the real opportunities exist beyond the markets themselves.
Alternative investments, once the domain of institutional investors and the ultra-rich, have now become more common among a broader pool of investors. If you aren’t well-versed in alternatives, now is the time to learn. Thankfully it’s never been easier to start with alternatives no matter your comfort level or expertise. Platforms like FarmTogether make it easy for newcomers to understand how alternative investments work, what role they play in your portfolio, and why they pose unique advantages that other and more well-trodden investment types can’t.
Making the Most of a New Year of Investing
Whether you decide to review your investments at the ringing in of the new year, at tax time, or any other part of the year, the important thing is to keep track of your portfolio consistently. The dawning of a new year provides you with a great, built-in reminder to review existing investments, make new moves, and plan for the future.
If you’re looking to add diversification to your portfolio this coming year, alternative investments are a great option. With alternatives, you get the upside of low-correlation assets that don’t fluctuate with the markets. You can also broaden your portfolio’s exposure to different market sectors and industries in ways that aren’t possible through conventional investments.
One of the biggest opportunities in the world of alternative investments is farmland. Farmland investing helps build resilience into your portfolio that helps hedge against inflation while also opening up the possibility of long-term returns based on historical performance.
If diversifying your portfolio with new investment opportunities is your financial resolution, open a FarmTogether account today. Or, if you want to learn more, you can check out our FAQ before getting started.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.