An Easy Template For Your Year-End Portfolio And Plan Review
December 16, 2022 at 4:12 p.m.
By Mike Bergen-
A great place to start is to assess how well you are progressing toward your goal. If you are in the accumulation stage, preparing for retirement, this means checking your current balances, reviewing your savings rate, projecting what you presume your returns will be in the years until you retire, and how much time you have left until retirement. Once you crunch those numbers, you might have a reasonable estimate of how well you are progressing. If you find you are coming up short, this is the perfect time to remediate the situation by saving more, changing your asset allocation to possibly generate higher returns, or delaying your retirement. If you are in the distribution stage, in retirement, using your assets for living expenses, this means checking your current balances, your rate of return, your withdrawal rate, and your life expectancy. If you find that you may run out of money, the more time you have to correct it, the better.
Even if you are on track, you should review your asset allocation – the mix of stocks, bonds and cash in your portfolio. In 2021, it is likely that your stock investments outpaced the rest of your portfolio. If so, this might be a good to time to rebalance. If you have any major life events, or if your time horizon has become shorter, it might make sense to revise your asset allocation plan. You may also consider doing a deeper dive into your asset allocation and rebalancing based on characteristics like growth and value, or small, mid or large capitalization companies, as well as your mix of domestic and international investments.
You also should probably take a little time to review the individual holdings in your portfolio. Check for manager changes, as well as how your investments are performing against their peers.
Another good idea for your end-of-year review, is to check the balance of your emergency fund. One rule of thumb is that you should have 6 months’ worth of living expenses in cash, something like a certificate of deposit (CD), a savings account, or a money market account. If your income is volatile, you might want to consider having even more in reserve. It will come as no surprise that the returns on these accounts will be minimal. The important thing is that these funds are safe and accessible rather than providing high returns. If you own stocks outside of an IRA or tax-deferred account and your emergency fund is running a little low, this may be a good year to top it off with some of the performance from those equities.
Inflation is a factor that we haven’t had to consider much for a long time. That has changed this year. Take some time to assess how your portfolio will hold up to inflation. Fixed income portfolios are particularly sensitive to spikes in inflation.
The end of the year is a good time to do some tax planning, both for the current year and for the coming year. If you have any investments that are worth less than what you paid for them, it may be a good idea to consider selling them to realize the tax loss, which you may be able to use to decrease your tax obligation. If you are required to, and have not done so already, this could be the right time to take the minimum distribution from your tax-deferred account. Penalties for failing to do so can be steep. It is always a good idea to consult your tax professional before implementing any tax strategy.
Finally, you may wish to check the beneficiaries on your 401k, IRA, and insurance policies, especially if you’ve had a life event such as marriage, divorce, or the birth or adoption of a child. Making beneficiary changes is usually pretty easy during your lifetime but are impossible after death. These designations usually supersede your will, so just changing that may not be enough.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Alderfer Bergen & Co. and LPL Financial do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Asset allocation does not ensure a profit or protect against loss.
Securities and Advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
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A great place to start is to assess how well you are progressing toward your goal. If you are in the accumulation stage, preparing for retirement, this means checking your current balances, reviewing your savings rate, projecting what you presume your returns will be in the years until you retire, and how much time you have left until retirement. Once you crunch those numbers, you might have a reasonable estimate of how well you are progressing. If you find you are coming up short, this is the perfect time to remediate the situation by saving more, changing your asset allocation to possibly generate higher returns, or delaying your retirement. If you are in the distribution stage, in retirement, using your assets for living expenses, this means checking your current balances, your rate of return, your withdrawal rate, and your life expectancy. If you find that you may run out of money, the more time you have to correct it, the better.
Even if you are on track, you should review your asset allocation – the mix of stocks, bonds and cash in your portfolio. In 2021, it is likely that your stock investments outpaced the rest of your portfolio. If so, this might be a good to time to rebalance. If you have any major life events, or if your time horizon has become shorter, it might make sense to revise your asset allocation plan. You may also consider doing a deeper dive into your asset allocation and rebalancing based on characteristics like growth and value, or small, mid or large capitalization companies, as well as your mix of domestic and international investments.
You also should probably take a little time to review the individual holdings in your portfolio. Check for manager changes, as well as how your investments are performing against their peers.
Another good idea for your end-of-year review, is to check the balance of your emergency fund. One rule of thumb is that you should have 6 months’ worth of living expenses in cash, something like a certificate of deposit (CD), a savings account, or a money market account. If your income is volatile, you might want to consider having even more in reserve. It will come as no surprise that the returns on these accounts will be minimal. The important thing is that these funds are safe and accessible rather than providing high returns. If you own stocks outside of an IRA or tax-deferred account and your emergency fund is running a little low, this may be a good year to top it off with some of the performance from those equities.
Inflation is a factor that we haven’t had to consider much for a long time. That has changed this year. Take some time to assess how your portfolio will hold up to inflation. Fixed income portfolios are particularly sensitive to spikes in inflation.
The end of the year is a good time to do some tax planning, both for the current year and for the coming year. If you have any investments that are worth less than what you paid for them, it may be a good idea to consider selling them to realize the tax loss, which you may be able to use to decrease your tax obligation. If you are required to, and have not done so already, this could be the right time to take the minimum distribution from your tax-deferred account. Penalties for failing to do so can be steep. It is always a good idea to consult your tax professional before implementing any tax strategy.
Finally, you may wish to check the beneficiaries on your 401k, IRA, and insurance policies, especially if you’ve had a life event such as marriage, divorce, or the birth or adoption of a child. Making beneficiary changes is usually pretty easy during your lifetime but are impossible after death. These designations usually supersede your will, so just changing that may not be enough.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Alderfer Bergen & Co. and LPL Financial do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Asset allocation does not ensure a profit or protect against loss.
Securities and Advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
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