Five Investment Resolutions for 2010

Includes: DIA, QQQ, SPY, TBT, TIP, TLT
by: Larry House

I know this is the time for predictions for the coming new year; everyone and his/her dog are making them. I don't put stock in predictions (or buy stock based on them) as I see predictions as a futile exercise to guess the unknowable. I do think trends are predictive, to some degree, and I try to identify them.

What I do have control over are my investment guidelines and choices. In that spirit, here are some of my investing resolutions for the first year of the new decade. I will hedge my resolutions with one disclaimer: I reserve the right to trash them all and do something totally different if conditions and circumstances warrant. I think that is the new mantra of long-term investing. As you can see from my bio, I am a working retired person. My resolutions might not make much sense to investors of different ages with different investing needs/goals.

Resolution #1--I will save more money. This encompasses every aspect to which I can apply it. I will save money by shopping smart, being careful in assessing needs and excluding wants to a large degree. It also means I plan to put more money into savings vehicles, such as my old fashioned passbook savings account for emergencies, plus other cash reservoirs for longer-term savings that are a bit more remote than the passbook account (meaning an online savings account with slightly higher interest and U.S. Savings Bonds). Before you puke, this is savings that I will continue to build over time, and I am more interested in the money being there than I am in the rate of interest. TIPS and I Bonds will be a part of that as a partial inflation hedge. Secure savings will be an important part of my 2010 investment strategy.

Resolution #2--I will avoid/reduce debt. Debt is a four-letter word. Personal freedom and security are founded in living debt-free. The reality is, it makes no sense to invest a penny in stocks and bonds while paying 8% or more on any form of debt. While I may want to think my investing prowess will bring in more than 8% per year, the reality is that is getting increasingly more difficult to do, and I think 2010 will be a real challenge to reach that level for a small investor such as I. And even if no debt weren't the best way to live in these days and times, it makes me sick at my stomach to pay interest to a company that views me as a pawn or as its ATM that it can jack around any way it wants. The last couple of years have really caused some companies to show their true colors, and they aren't pretty. I use credit judiciously with companies that I choose, One company, which I shall not name, has a card that I will never leave home with again. This isn't a matter of sour grapes; it is just a business choice on my part. I will do business where I am treated fairly and where I am appreciated. If a company can't do that, I choose not to do business with that company.

Resolution #3--My bond investments in 2010 will be only in short-term maturities. Short-term to me is less than three years. The trend is for higher interest rates, and that means I don't want long-term or intermediate-term bonds. Yes, that means lower interest rates for that part of my portfolio, but nothing else makes sense. I am more concerned with the maturity range of the bonds than the quality. I am not afraid of lower quality bonds; I just want all my bond holdings next year to be short-term.

Resolution #4--I will hold inflation-sensitive investments in 2010. My own assessment is inflation will not be much of a factor next year. I think it will be a major factor a bit further out than that, but since I don't really know for sure, it only makes sense to hold 15-20% of my portfolio in a combination of commodities, precious metals, and TIPS. PIMCO's Bill Gross says 2010 will be a year of deflation rather than inflation, and I put a lot of trust in his view. I just don't think it makes sense to ignore inflation hedges through next year. Economic shifts don't follow the calendar, and they can be well underway before fully identified. I just feel better having that portion of my investments set now and then see what happens.

Resolution #5--I will buy stocks in 2010 if they become cheap enough to present obvious value. I don't see that in current stock price levels. No, I didn't miss all the rally since last March. I haven't been waiting for lower prices that long, but I am waiting now. To me, either a near-perfect economic path will unfold next year, which could take stocks nicely higher, maybe 10-15%, or stocks could move around some both directions but return little, or some of the nightmares could become reality and stocks could give back a lot. Two of the three paths mean stocks are not especially attractive right now. I am waiting for a fat pitch, as Benjamin Graham suggested investors do. I am also waiting for clarity in how these massive economic forces are going to play out. Oh, sure, I may miss some profits along the way--if things get resolved sooner--but I can also prevent my head from being handed to me on a platter if some of the worst-case possibilities come to pass.

I look forward to 2010. We are living in exciting times. That is worth a lot. I don't think we have yet learned all the lessons we should have learned from the recent credit crisis. We still face a growing/looming debt crisis, which our government is trying to avoid with more debt. Yeah, and I am going to lose weight eating more cookies! Peace, health, and profit to all in 2010. Here it comes!!

Disclosure: No positions to disclose.