JP Morgan Chase Franklin and International Companies Blog: 2014 Financial Tips

9 simple financial tips for 2014 and beyond

Happy 2014, Foolish readers.

I trust you had a wonderful investing year in 2013. Given the S&P/ASX 200 climbed 15.1%, its best year since the 30.9% rally in 2009, it should have been a good one for you. It certainly was for me.

Looking ahead to 2014, with interest rates still at historically low levels, many fund managers are again tipping a year of good gains.

As quoted in The Australian Financial Review, Legg Mason chief investment officer Reece Birtles said…

“… the local market is still trading of an average price-earnings ratio of 14.5 times which is quite attractive… Especially when you consider that on average the S&P/ASX 200 benchmark index is still delivering a fully franked dividend yield of about 6.3%, compared to average returns of 2.6% from cash and 4.2% from bonds.

So domestic equities still look like good value as compared to other asset classes.”

In 2014, having just added another ASX small cap to my portfolio, I’ll continue to put money to work in the market, whilst also keeping a decent cash buffer so I can take advantage of those inevitable market wobbles.

I’ve got my beady eyes on a couple of good prospects, and just as importantly, I’m keeping a close eye on the stocks already in my portfolio.

As I said before Christmas, I will make more investing mistakes in 2014, just like my Lynas (ASX: LYC) horror show.

Try as I might to avoid it, one or more of those future mistakes is likely sitting in my portfolio right now, staring me in the face.

Is this my portfolio’s big winner in 2014?

Hopefully it’s not Buru Energy (ASX: BRU), the company in late June I called “My stock for ‘the next great resources boom‘.

On Christmas Eve I wondered aloud whether Buru could be my portfolio’s big winner in 2014, and beyond.

Seems I might have been a few days early, given the stock jumped 8% on December 30th after a well received operational update. Still, I’ve no complaints — it doesn’t matter to me whether the gains came in December 2013, January 2014 or indeed January 2015. I’ll take them when they come, thank you very much.

Long-time readers will know Buru Energy was trading at around $1.20 when I first highlighted it in these pages. It closed out 2013 at $1.75, a very healthy 46% gain. I’m hopeful of another good year, although I’m also conscious that it’s never all plain sailing for unprofitable emerging oil producers.

A holiday gift for all Australians

Holiday season is full of gifts, my biggest gift so far being another Ashes test victory at the MCG. I was lucky enough to attend three of the four days, including the final day. Winners are definitely grinners.

Today I have another gift for you, one from Buck Hartzell, the Director of Investor Learning and Operations at Fool HQ.

As 2014 begins, now is a great time to review your investing goals, including Buck’s one-page financial checklist that will allow you to build your wealth over the long term.

9 Simple Financial Tips for 2014 and Beyond

“Boy, if only I had found you guys 20 or 30 years ago. I would be all set!”

I hear some variation of that comment all the time from members of our Motley Fool community. Sadly, we can’t turn back the clock and do things right. We can, however, teach the younger generation to avoid making our mistakes.

With that in mind, I created a handy, one-page financial checklist that will allow everyone to build their wealth over the long term. If you follow this simple advice, you’ll be on the road to financial freedom. Best of all, you’ll have no regrets in the future about your financial condition.

1. Pay yourself first.

That’s a fancy way of saying you need to get in the habit of saving a portion of your earnings early on in life. It’s probably the biggest single predictor of financial independence for you in the future.

2. Invest your savings smartly.

(A) First, make sure you set aside about three to six months of living expenses. Keep it in cash for unexpected events.

(B) Consider salary sacrificing to your superannuation fund.

(C) If you still have money left, open a discount brokerage account and start making investments directly into individual shares.

3. Create a portfolio for all seasons.

Your plan for portfolio allocation shouldn’t change with the investing environment. You will want a plan that you can stick to through thick and thin.

(A) A good rule of thumb for deciding what percent should be in stocks is to subtract your age from 110, the remainder should be in cash or bonds. If you’re 40 years old, that means you’d have 70% in stocks and 30% in cash or bonds. Depending on your individual tolerance for portfolio volatility, you may deviate from this rule, but it’s a good starting point.

(B) Only invest in stocks if you DO NOT need to touch that money for at least five years. If you need the money before, then you can opt for term deposits or just plain old cash.

(D) Avoid high-fee funds.

(E) High-yielding fully franked dividend stocks are good candidates for superannuation funds.

4. Be an educated shopper of financial services.

Before acting on any advice ask your financial professional these two questions:

(A) How do they get paid for the advice they provide?

(B) Are they personally invested in whatever they’ve suggested?

If you’re uncomfortable with the answers to those two questions, seek help from someone else, preferably a fee-only financial advisor or from a referral from someone you respect.

5. Avoid McMansions.

Don’t buy a home unless you plan to spend at least seven years in that area. And you don’t want to be house poor, so don’t mortgage yourself up so much that you don’t have any money left over to save, invest and spend each month.

6. Be responsible and check your beneficiaries.

Make sure you have an up-to-date beneficiary listed on your superannuation.

7. Spend a few hundred bucks on these three important documents.

If you’re an adult with substantial savings, you need to have a professional draft these two documents. These are really important, so we don’t recommend using an online form:

(A) A will.

(B) An enduring power of attorney.

8. Start your own business early in life.

This may seem like an odd suggestion. The reality is that most people will learn far more about life and investing if they’ve operated their own business. It doesn’t need to be a huge financial success in order for you to learn a set of skills that will benefit you for a lifetime.

9. Create a diversified, self-reflective portfolio.

(A) A basic portfolio should contain somewhere around 15 to 25 positions. We like the idea of buying in thirds. If a full position is 6% of your portfolio, you’ll buy 2% at a time. Be sure to keep your trading costs below 2%.

(B) Consider 10% as the maximum position size when buying a stock. And no more than 30% of your portfolio should be in a single sector.

(C) Your portfolio should say something about you. A great place to search for potential investments is to track where you like to spend your discretionary money.

A new year is a great time for all of us to get our financial houses in order. Hopefully, the above list provides some helpful guidance. Here’s to a safe and prosperous 2014. Happy investing!