THE START OF THE NEW YEAR IS A NATURAL TIME TO EVALUATE YOUR FINANCES AND RESOLVE TO MAKE SOME POSITIVE CHANGES.
To simplify the process, consider five “Must Do” items unapologetically old school — tried and true maxims that can give you peace of mind and put you on the path to prosperity in 2019.
5 Must Doʼs
1. Revisit and Update Your Financial Plan.
If you do not have a financial plan, seek out the assistance of a good financial planner and develop one. Why? Because a financial plan is an absolute necessity. All investment decisions flow from the plan. It is the key document that answers three basic questions: Who is the money for? What is the money for? When will the money be needed? If you have not answered these three questions in some detail, how can you or a financial advisor make intelligent decisions about your investment portfolio? Based on the answers to these questions, a good financial advisor will help determine how much you should be saving every month and year, and what investment mix is appropriate for you.
2. Rebalance Your Investment Accounts.
Once you have developed your financial plan, balance (or rebalance) your investment portfolio and retirement accounts based on it. Maintaining a well- diversified portfolio will go a long way in helping achieve your financial goals. Over longer periods
of time, different segments of the market may outperform, causing some investment sectors to become overweight in your portfolio. Rebalancing your portfolio every so often — perhaps annually—– will ensure it stays diversified.
3. Update Your Estate Planning.
Consider the need to update your estate planning documents. If it has been a while since you have looked at your will — or if, God forbid, you do
not have one — spend an hour with an attorney who specializes in estate and probate matters and determine what is needed to ensure your wishes are met after you are gone.
4. Consolidate Old Retirement Accounts.
Consolidate your old 401(k)s from previous employers into your current 401(k) (if your plan allows) or into an IRA. 401(k)s can be instrumental
in saving for retirement, but they often include administration expenses and more expensive share classes than those available in IRAs. Consolidating your old accounts can reduce those expenses. Additionally, old 401(k)s may have been set up using allocations that are no longer appropriate for you, and 401(k) investments are often limited to just a few options provided by the plan provider. Rolling your old 401(k) into an IRA at a brokerage firm will open up thousands of investment options.
5. Stick to Your Plan.
Develop your plan and stick to it. Do not try to
“time the markets.” Since the end of WWII, there have been 14 bear market declines. The average decline (as measured by the S&P 500) was 30.7 percent, and the average duration of each decline was 14.5 months. Yet, as of October 2018, at over 2600, the S&P 500 is more than 191 times higher than its lowest close in 1949. When you include the reinvestment of dividends and adjust for inflation, that works out to an average annual return of approximately seven percent since 1946. Do not get spooked by short-term trends and current events. Focus on the long term.
