Anytime is a good time to make financial resolutions and set goals, but the traditional idea of doing this at the beginning of a new year is as good a time as any to make sure your financial life is in order, or make changes to move in that direction.
We have three learning objectives for this post:
1. To identify the top three things you can do in the next year to improve your financial life
2. Review your financial plan, or to start to develop one if you don’t currently have a plan
3. Assess your investment portfolio to make sure it is appropriately positioned for your current and future objectives
The Top Three Things – Your finances involve quite a few areas and looking at all of them at once can become daunting to take action since it is hard to do so many things at one time. We believe in focusing in on the two or three most important things that you can make improvement on to provide satisfaction and peace of mind. Once you complete a couple things successfully, the momentum will carry on to others and you’ll be in great shape before you know it.
While top priorities will be different from family to family or individual to individual, there are some areas we suggest looking at first to have a significant impact.
• Debt – Having too much debt creates a crushing load on your finances. The monthly debt payment obligations may prevent you from investing as much in retirement plans or saving toward future goals. Review your different debt obligations and the interest rates associated with each. Plan to pay down higher interest rate debt first. In today’s very low interest rate environment, consolidating debt using a low interest home equity loan may make sense. Credit card debt is where problems often start as the interest on these are usually at much higher rates than auto and home loans.
• Investment Risk – Often we find that investors tend to let the risk exposure of their portfolio grow over time as the markets do well. After all, it’s easy to assume the trends of the last few good years will continue. They may for a while, but eventually trends reverse. Depending on your personality and time horizon, a drop in the financial markets may become unnerving. We often see investors panic and sell low, locking in losses that may take a long time to recover from.
• Legacy Planning – It’s easy to ignore or put off your legacy planning, but it’s the one area we will all eventually need. This subject includes some legal documents such as wills, trusts, healthcare power of attorney , etc. as well as communication with heirs about what they can expect and your wishes later in life or in death.
Everyone should, at a minimum, have a will and for many a revocable living trust will makes things easier and faster to settle your estate.
The Plan – I guess most of us have some sort of plan in our heads, but a true and effective financial plan should be written, reviewed and adjusted periodically. A plan collecting dust on a shelf is a waste of time and money. An overall financial plan should address more than just investing to “make money”. Other important areas are taxes, insurance, your goals and objectives and the aforementioned legacy planning aspects. The plan should also include a structured retirement income plan for when you transition from accumulating assets to using the assets to create income.
Working with a trusted advisor who has training and certifications in plan development, implementation and on-going review is a great idea if this is not your area of expertise.
The Investment Portfolio – Your investment portfolio is at the center of your overall financial plan. It is best to use a disciplined approach to designing the portfolio appropriate for your goals and risk tolerance, to avoid letting the emotions of fear or greed take over and finding out later you took too much risk or missed out on opportunities.
Depending on your situation and personality, it is normal for the investment portion of the financial plan to evolve to reach the goal of generating enough income in retirement to supplement your other income sources, such as your pension and Social Security benefits.
To be a successful investor, it is imperative to maintain a disciplined approach to decision making and one of the best ways to do this is to check and rebalance your portfolio allocation about once a year or as necessary to stay on target. This ensures you won’t have too much of your portfolio in the market segment which is about to undergo a severe correction after being on top for several years. Trust me, it won’t feel like the right thing to do, but there is no doubt that it is effective over time.
If you want to start the New Year off with a solid plan to reach your goals, or at any time for that matter, call us at 941-778-1900 or visit www.integracapitaladvisors.com today to schedule an introductory call.