Fall is upon us in the Midwest. One only need take a look outside to see the signs of the autumnal equinox all around them. The leaves are turning bright shades of yellow and orange and the air is fresh and crisp. As financial planners there is another way we know that fall is here – It is perhaps one of the busiest times of our calendar year.
We find that many people use the changing of the seasons as a signal to do a careful review of their financial status. And with good reason – evaluating your plan now is a great way to ensure that you are ready for the end of the year and the start of 2014. Here are six questions you should discuss with your financial adviser to ensure that your portfolio is in tip-top shape this fall – consider it a winterizing kit for your investments:
- What actions do I need to take before the end of the year? While a lot of financial questions can wait until the New Year begins, for tax purposes, there are some crucial things you must consider before the ball drops in Times Square. Do you have taxable gains this year that you should consider offsetting with realized losses? Is your portfolio prepared for any upcoming legislative changes in 2014? Are there things you need to shift based on your age, retirement plans or upcoming financial goals in 2014? Now is the time to talk to your financial adviser and ensure that you are prepared.
- What is the performance of my current investments relative to similar options? Gauging performance on returns alone will not always give you the best picture of your portfolio’s strength. But, if you look at your portfolio relative to how the market has performed, it can give you a better picture of where you stand. Again, this is where a financial adviser can steer you in the right direction (preferably one who is not being paid based on commissions for product sold.)
- Am I taking the appropriate amount of risk in my portfolio? Finding the right balance of risk in your investments requires a certain amount of finesse. It is important that you are neither too aggressive nor too conservative. A portfolio that is too aggressive can result in significant loss, while one that is too conservative might mean that you are not keeping your investments in line with the current inflation levels (also resulting in loss or at the very least minimal gain).
- Are you saving enough? For most people the goal in having a strong portfolio is to ensure that they can live out their retirement in a comfortable fashion. With that in mind, the amount of money you save can have drastic impact on whether or not your dreams become a reality. Some people take the wait and see approach…making a savings plan and then waiting several years to see if it worked out. However, it is better to continually reevaluate your plan and make little tweaks as you move forward.
- Can I sustain my current withdrawal rate? This question is only really applicable if you are already retired and drawing on your portfolio to support your lifestyle, but it is a question that retirees often ignore. While the fear of running out of money in retirement is a very real thing, many people simply ignore the amount of money they are drawing from their portfolio. The rule of thumb is generally 4% however, it is important to remember that this might not be appropriate for everyone. New products have come onto the scene that allow you to guarantee your income for life no matter what happens in the markets that can be a good fit for investors wishing to know they can’t outlive their income.
- What other changes should be made? As with life, there are always twists and turns in investment planning. This is why it is crucial to work with a financial adviser you trust – a person who will not tell you things just because they think it is what you want to hear (or it will help them to make a few extra bucks), but rather a person who will give you honest advice that will help you to accomplish your goals both short and long-term.
In the end, the beauty of fall and a well planned portfolio are in perfect harmony with one another. They both give us peace-of-mind as we head into the next season of life. And, if we prepare well in the fall, we will be better equipped to weather any upcoming storms.