There’s an old adage that says,
”
Most folks spend more time planning their annual vacations than
they do their annual finances
”
.
There’s an old adage that says, “Most folks spend more time planning their annual vacations than they do their annual finances”.
As we enter a new year, and with it a new tax season, I find this is a popular time to conduct your annual financial check-up as you’re in the midst of tax preparation and have all your current documents pulled and in one place.
An important part of your financial planning is to regularly re-evaluate investment strategies. Consider some of the following ideas to help strengthen your personal investment plan for 2011, and the years to come.
Are you appropriately positioned to enter 2011?
After a year of positive numbers across the board in the stock market, we are seeing the recoveries of many losses from earlier in the decade.
Looking at the final 2010 results of the major indices, we see the Dow Jones Industrial Average clocked in with a return of 11.02 percent – its second annual rise in a row and fourth in the past five years.
The S&P 500, a broader index, was up 12.78 percent in 2010, and the Nasdaq climbed 16.9 percent. In the bond markets, we saw the Barclays Aggregate Bond Index, an index of high-quality bonds, return 6.5 percent.
That said, markets go up and markets go down, i.e. markets are volatile – this can work both for and against you. As part of your investment review, it’s important to reassess your risk tolerance on a regular basis.
You may want to discuss with your advisor whether a more conservative, moderate or aggressive allocation will best help you meet short and long term goals.
For instance, bonds and money market accounts have historically worked well for shorter term goals, but in the long term they have not been effective at keeping up with inflation.
Be sure to make this part of your review, especially if it has been more than a year since you last re-evaluated or rebalanced your portfolio. Following are some questions to help get you started.
Were there any changes to your overall financial position? Re-visit your original investment goals, time horizons, risk tolerance and priorities.
Have your objectives or circumstances changed? If so, does this alter your asset allocation mix (how much of your money you invest in stocks, bonds, and cash/money markets)?
Were there any changes to your time horizon, or your priorities? As we meander through life, we have a variety of specific time horizons – for example, goals to purchase a home in three to five years, send kids to college in 10 years, retire at age 65.
When children or grandchildren are born, priorities may change. Young adults typically have many financial goals, however as we age many of those goals are met, or modified, depending on our circumstances, and our financial strategies need to be updated to reflect any changes.
