January 1st represents the start of a new cycle, an opportunity to recognize what we’ve been doing wrong and change it. A lot of people start diets, go to the gym and, in general, there’s a sense of optimism in the air.

With that in mind, here are my New Year resolutions for investors. I believe they will help you reduce your anxiety and have a more pleasant investment experience.

1. Understand your true purpose for money. What does money represent for you? What does money allow you (or not) to do/live? How does money relate with your values and your personality? Answering these critical questions will allow you to set priorities, to determine which expenditures are consistent with your values and which aren’t and in general, to know yourself better.

2. Eliminate all stock picking and market timing from your portfolio. Numerous studies have demonstrated that stock picking and market timing simply don’t work for investors (although they work very well for brokerage and fund companies); the majority of actively managed funds (whose managers make millions per year picking stocks and trying to time the market) fail to simply outperform their benchmarks. It is easier (and less stressful) to replace all your stock picking funds efforts with low-cost index funds.

3. Have a review of your portfolio’s expenses. Expenses reduce your returns, simply paying 1% more in fees can erode over 30% of your retirement funds after 30 years.

4. Turn off CNBC. Their livelihood depends on high ratings. Noise, stress and “investment pornography” generate high ratings for them, and a lot of stress for you (even if you don’t act on their “recommendations”). When you watch CNBC you are constantly bombarded with fear (“SELL! SELL! SELL!”) and greed (“coming up: 5 stocks set to rebound”) that only create conflicting emotions with the long-term nature of investing.

5. Understand the difference between gambling and investing.

6. Work with a fee-only, fiduciary advisor. A fee-only advisor has a legal obligation to put your interests first and is only paid by you. A broker has a contractual obligation with his/her employer (the “broker-dealer”) and is paid based on what he sells you.

7. Stop treating your accounts independently and treat them as a single portfolio.All your retirement accounts should be constructing a retirement portfolio, with all of them aligned to that purpose. The lack of alignment or consistency can lead to an amorphous portfolio without direction.

8. Understand your risk personality and act on it. Most investors use a “risk tolerance” questionnaire to determine how much risk they’re willing to take. However, it  is also critical to understand the need and the ability to take risk. An example: a retired Doctor may be willing to take lots of risk in his portfolio, but he doesn’t need that risk, he already has enough to sustain his lifestyle, he has more to lose than to win if he takes on more risk. Your risk personality is defined by your stage in life, your profession, your assets, among other factors.

9. Ignore all forecasts. Human kind haven’t found the means to predict the future. As convincing as somebody sounds when describing the “doom” or “boom” that is about to happen, there’s simply no way to know which of all the forecasters will be right but after the fact.

10. Recognize that “the market” is more powerful than you. Stock prices reflect all what is known about stocks at the time; only new information will change the price of a stock, and if often changes within minutes (or seconds) after the release of such new information. Don’t try to beat the market, it will only beat you.

I wish you and your loved ones a fantastic 2011 full of joy and success.

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