New Year’s Financial Resolutions

new years resolutions list

It’s still early in 2014- time to make financial resolutions for the New Year. Here are 11 you can make and keep:

  1. Establish/update your goal-based plan. It starts with goals- financial independence, college education, travel, etc. You add in resources, liabilities and expected time lines. You need a plan that has an excellent chance of success and that has been stress tested for potential “surprises” in the future. Our clients know that we accomplish this with our MoneyGuidePro software, which uses Monte Carlo simulations to calculate expected success and use the “play zone” and the “what am I afraid of?” screens to stress test.
  2. Review your Risk Profile. Your risk profile includes your risk capacity, your risk tolerance and your risk perception. The world and the investment landscape changes regularly. In addition, personal circumstances change over time. Hence, it is important to review your risk profile and make sure that your asset allocation conforms to it.
  3. Invest in a diversified asset allocation portfolio. Consider all three major asset classes; stocks, bond and alternatives. Within each asset class there should be sufficient diversification including, for example, small, mid and large cap U.S. stocks, international and emerging stocks, corporate bonds, international bonds, floating-rate bonds, high yield bonds, and various complementary alternatives. With the end of the 30 yr. bond bull market, allocations should be reviewed. Historical rules of thumb, such as “the percentage of bonds in your portfolio should equal your age,” very likely are not appropriate in today’s investment environment.
  4. Use a robust investment management platform. The old “set it and forget it” doesn’t work. You need regular rebalancing. Furthermore, research has shown that for equities and fixed holdings, passive management outperforms active management by roughly 1% a year, just about equal to the higher operating expenses for actively managed funds. Alternative investments, on the other hand, often are actively managed and can still provide an excellent net benefit to your portfolio.
  5. Max out your deferred accounts. Income you invest before taxes starts out with about a 40% advantage. And, often you receive employer contributions. You should max out your IRA-$5,500 for those under 50 and $6,500 for those over 50-even if the amount is not deductible. If not deductible, you might consider a “backdoor Roth.”
  6. Review your insurance. You need to review your coverages and what you are paying for them. Do you have too much life insurance or not enough? How about long-term disability, long-term care, home, auto, umbrella Have you “shopped” the policies recently to compare prices? We don’t sell insurance, but we know insurance. We regularly help our clients with this review.
  7. Review/refinance your debt. Interest rates have gone up significantly in the last year and will likely climb more in the next few years. It’s a good time to review your home mortgage and other debt.
  8. Save for college. Set up or add to a 529 plan or college account. College isn’t cheap. Also, you may want to review the investment allocation within your college funds. Typically, they should be less aggressive as the student nears college age.
  9. Plan your estate. At a minimum you need a will, health care power of attorney and property power of attorney. You may need trusts and you may need planning to minimize federal and/or state estate and inheritance taxes. A visit to an estate attorney may be a good suggestion for 2014.
  10. Simplify, organize and store records electronically. Move your banking online. Consolidate various investment accounts. Check with your CPA and shred as many tax returns and supporting documents as you can. Make PDF copies of important documents, including estate planning, business papers, tax records, real estate records, titles, personal papers (such as birth certificates) and list of key advisors and important contacts. Then, save these electronic records in at least two safe places.
  11. Get help (if you need it), to accomplish these resolutions. We’re all busy and we all have different talents and priorities. Sometimes we need an expert and/or coach. In financial matters, DWM is both. We help our clients with all of these items and more as part of our Total Wealth Management Program. If you need help, give us a call.