You made it through 2012 – the good, the bad, the ugly. Exhale, reflect. What financial lessons did 2012 offer about retirement and saving? Plenty. The experts weigh in on what you should think long and hard about and use to your advantage in 2013.
Tune out the noise
One of the biggest mistakes of 2012 was to panic and listen too much to the media. “People thought the world was going to end, consequently why save? Why worry? Too many retirees depend on the market for their retirement income and they are the ones who get hurt the most. Having a plan is the biggest key,” says Annalee Leonard, president of Mainstay Financial Group. Avoid the temptation to react to market gyrations, insulate yourself from the talking heads. “Many headlines contribute to negative investor behaviors. Don't let your emotions get the best of you,” said Jeremy Welther, a principal and senior financial advisor with wealth management firm Brinton Eaton in a prepared statement.
Stock market volatility isn't likely to go away any time soon, with so much uncertainty still in the global economy. “If any lesson was to be learned from 2012, it was to expect more of the same when it comes to the market,” says Roy Laux, president of Synergy Financial Services.
Instead of panicking, focus on managing risks. Diversification and re-balancing remain the cornerstones of asset allocation, a time-tested portfolio management tool, points out Welther. Over time, your portfolio will become unbalanced as some asset classes grow faster than others. Periodically trim winners and add to your losers to stay on target, he says. “It's counter-intuitive, but it works. Systematically buying low and selling high allows you to reduce your overall risk and can actually help improve your returns over time.”
“Despite all the warnings of doom and gloom all year long, the doomsayers didn't get it right. The stock markets had a good year, despite all the warnings to the contrary. The Dow, the S&P 500 and NASDAQ were all up nicely, year over year, on December 31st,” says James Poe, founder of Texas Retirement Specialists.
Whether it's Hurricane Sandy, tornadoes, or floods, the unusual happens, and seemingly with increasing frequency. Prepare for the unexpected. Review your insurance portfolio. “Ensure that you are neither over insured and paying more than you have to, nor under insured with not enough financial protection in the event of an emergency. Examine your coverage in property and casualty, disability, liability and long-term care,” says Welther.
Despite whatever priorities you have, there's no getting around making saving for the short and long-term top that list. Survey, after survey last year showed that while many Americans are paying down their debt, many aren't prepared for emergencies. A survey from Creditdonkey.com revealed that in 2012, close to half of those polled had no more than $500 in savings for emergencies. “Make 2013 the year you start saving more,” says Charles Tran, founder of the credit card comparison site. Many however, are thinking otherwise. A new survey from American Consumer Credit Counseling found that less than 5 percent of those polled said retirement savings will be an important goal for 2013.
Housing isn't dead
While residential real estate has been mostly, a sad, sad story since 2008, 2012 showed signs of life in the real estate market. With interest rates still low and prices slowly ticking upward, “the market is a great opportunity to invest in a second home that ultimately can be used as a permanent residence upon retirement,” says Jordan Hoefar, a spokesperson for HomeAway, a vacation rental site. By taking a buy-and-rent approach before you're ready to retire, a new home will have partly paid for itself by the time you're ready to move into it, says Hoefar. Among those owners who have a mortgage on their vacation rental home, nearly half are able to cover nearly 75 percent of their mortgage payment by renting it on websites. Says Hoefar, “On average, owners who advertise on HomeAway rent their home 19 weeks per year and generate more than $26,000 in rental income.”
Whatever financial mistakes you may have made or saw others make last year, what's done is done. Learn the lesson and make it work for you in 2013.