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2013 investment resolutions

Dale Jackson

2012 rewarded the disciplined investor. Blue-chip stocks in the S&P 500 jumped more than 13 per cent and the TSX grew by three per cent. The global economy was sluggish but corporate earnings were relatively strong and companies rewarded patient shareholders with generous dividends.

As dull as that may sound, the trick for 2013 is to stay the course and soldier through any fiscal cliff-type events the world may throw in our way.

Here are a few resolutions for the New Year to help get you there:

Review your investment portfolio

How did your investments do against the index and other stocks in their sectors in 2012? Ask yourself if it’s time to sell investments that have gained or if there is potential for further gains.

Consider selling the slackers, or determine if they need more time to prove themselves.

Remember fixed income? Investment grade bonds may be producing puny yields but they still have an important role to play in your portfolio as a stabilizer to the more volatile equities.

You can adjust your risk/reward dynamics by shifting the mix between fixed income and equities.

Create a five-year plan

A five-year span is short enough to be realistic and long enough to smooth out short-term fluctuations.

Start your plan by adding up your total investment assets - including a conservative value for your home if you have one, and add up all your debt – including your mortgage if you have one.

Then create annual benchmarks for how much you will contribute, how much you expect your investments to appreciate, and payments on your debt principal.

Few things are more gratifying than measuring your progress each new year if you are moving toward a long term goal.

Contribute to your RRSP before the deadline

To defer paying tax in your top income bracket for 2012 until you retire in a lower tax bracket, you can sock away any extra net income into a registered retirement savings plan. The deadline to contribute for the 2012 tax year is March first.

It may seem like a long way off but an RRSP contribution now will allow you to avoid the headache of having to raise the cash at the last minute.

You can turbo-boost your contribution by tabulating your return ahead of time with an online RRSP return calculator, borrow the extra amount, and pay off the loan when the tax return comes in. Or ...

Open up a TFSA

...contribute the rebate to a tax free savings account.

Nearly 10 million Canadians already avoid paying tax on their investment gains through TFSAs.

This year Ottawa has added a $500 inflation adjustment to the annual $5,000 contribution limit, making the total space available in a Tax Free Savings Account $25,500.

TFSAs can hold just about anything – stocks, bonds, mutual funds, exchange traded funds and even options ... which brings us to the final resolution.

Learn more about options

It’s nice to think stock markets will continue to rise over the long term but they may not. Options provide a low-risk way to grow investments even when the broader markets are stagnant.

Options are contracts based on underlying securities that give rights to buy or sell at a set price at a set time in the future.

One popular option with novice investors is selling covered calls. The owner of a stock receives a payment to give the option buyer a right to buy the shares at a pre set price in future.

If the stock goes up the buyer gets it at the lower price and the seller pockets the premium.

If it remains below the price the owner keeps the shares and still pockets the premium.

Covered call writing is only effective when investors have significant assets in their portfolio. If you want to keep risk low, it takes money to make money – just something to think about in 2013.