It’s not unusual for people to start a new year plotting out all they want to achieve in the coming months, whether that involves a new exercise regimen, a career switch or checking a few more items off their bucket lists. But the beginning of the year also can be a great time to work on your investment portfolio and financial plan.
After such a bullish market year in 2017, it might not seem necessary to make any changes. But the moves you make now could affect the success of your plan for the rest of 2018 — and possibly for years to come.
If you haven’t done so yet, consider making an appointment with your financial and tax professionals to assess where you stand. Here are some timely items to address now and add to your annual financial checklist:
Look to rebalance your portfolio.
Thanks to another record-setting year in the market in 2017, many investors’ accounts are up. That’s a great thing, but it also means your asset allocation could be skewed. For example, a lot of people are likely overweight in the large-cap technology sector (Amazon, Facebook, Apple, etc.). If you own stock in these types of companies, you easily could have drifted from your target allocation without even realizing it. You could have started 2017 at a 65% stock to 35% bond allocation, but your mix today could be closer to 75%/25%. I understand it’s tough to rebalance when things are going so well, but it’s important to stick to your plan because it was originally designed to protect your money as well as grow it. (Need more incentive? Don’t forget the dot-com bubble of 2000.)
Look to maximize your savings.
A new year represents a new start, so this is a good time to focus on your savings in general and what you’re stashing away for retirement in particular. Many people focus their savings in one (or more) of these three directions: an IRA, a 401(k) or an HSA. You’ll want to review whether you are making the most of these savings opportunities. For example, if your employer offers a 401(k) and you aren’t contributing to it, you need to get started. Preferably, you’ll want to contribute up to the company’s matching amount, if they offer one. There also may be the likelihood you will receive a pay raise this year. If that happens, consider allocating a portion of it — or maybe even all of it — to your savings. Finally, I always like to tell people that if they are looking to save more, they should start off with an amount they feel is manageable. You can always increase the amount later. That’s better than overextending yourself by setting aside too much and then realizing you can’t pay your bills.
Look to refresh your financial plan.
The run-up in the stock market has most likely had a positive effect on your overall financial plan; therefore, you may have more retirement options available now than you thought. It’s smart to stick to your plan, but it is important to understand how it reacts in both good and bad markets. Setting at least an annual meeting with your adviser to go over your goals, reassess where you stand and consider new strategies makes good sense. Planning always needs to be done, whether the sun is shining or it’s raining buckets.
I often tell my clients that financial planning is a process, not a one-time event. The start of a new year is a great opportunity to look around, figure out where you are and where you want to be, and then implement the recommendations that will propel you toward your retirement goals.