It’s time for your year-end financial review
Increasing your contribution to your retirement plan is always a good idea. (Shutterstock)
As the year draws to a close, it is a good time to carry out a yearly review of your finances which can help you monitor your progress toward your financial goals. It gives you an opportunity to review your household spending and your investment strategy.
This checklist of simple year-end investment tips can get you started.
1. Review your progress to your financial goals
The New Year is often a time when we reflect upon where we are and where we are going. The extent to which you are achieving your financial goals should also be part of this reflection. Has your family situation changed in a way that requires an update in your financial strategy? Remember to include all of your — and your spouse’s — investment accounts in this review.
2. Update your personal investment policy
A key component of most year-end reviews is investment performance. Performance means different things to different people. Are you an investor focused on long-term growth or trying to maintain a portfolio that has the potential to produce current income needed to pay day-to-day living expenses? Your portfolio probably needs to evolve over time as your circumstances change. For most people this means reviewing your asset allocation in the context of your investment goals.
3. Review your portfolio’s current asset allocation
Once you review and update your asset allocation plan, you can compare it to the way that your investments are currently allocated.
4. Rebalance your assets
Compare how your assets are currently allocated with how you want them to be allocated. You can easily see which allocations need to be changed. Making these changes is called “balancing your portfolio.” On the one hand, balancing your portfolio requires the sale of assets that gained the most in the prior year and purchase those that performed less well.
5. Allocate assets effectively
As you rebalance, think about which assets you are putting into different accounts. This is especially important for those with more than one investment account and accounts that are not specifically for retirement.
6. Increase your contribution to your retirement plan
It is a good time to review how much you are saving for your future — it is always a good idea if you can to increase your contribution so that it maintains its real value going forwards.
7. Set up a meeting with your financial adviser
Answering some of the questions we’ve posed or analysing the data you’ve collected may be difficult. You may need to spend some time with your financial planner to understand the data and to develop a course of action.
Consider in advance what types of information are most important to you and why. Don’t be reluctant to ask questions if you don’t understand what’s being presented to you; a little clarification now might prevent misunderstandings and unrealistic expectations that could have a negative impact in the future. Here are some questions to consider.
* If your goals or concerns have changed over the last year, you’ll need to make that clear during your meeting.
* You may want to check on your portfolio’s absolute performance as well as how it fared compared to some sort of benchmark.
* If a change to your portfolio is suggested based on last year’s performance don’t hesitate to ask why the change is being recommended and what you might reasonably expect in terms of performance and potential risk as a result.
* Before making any change, find out how it might affect your investing costs, both immediate and ongoing. Again, a few questions now may help prevent surprises later.
Taking the time to review your finances at the end of the year will increase your ability to reach your investment goals. If there’s one resolution you keep going into the New Year, let it be a financial review.
By James Thomas, Managing Partner at DeVere Acuma