Did you know annual reviews aren’t only just to see your doctor? Just like physical checkups, a regular review of your investment portfolio and financial goals are critical elements for long-term success. Many investors only examine their portfolios when they think something is wrong or the market is down. However, this reactive approach can lead to missed opportunities and financial complications that may have been prevented if a scheduled review were in place.
It’s important to treat your annual financial checkup just as you would your annual physical. At Kletschke Wealth Management Group, we plan periodic reviews with our clients to help keep their financial plan on track.
Here are some key areas to review …
Am I on Track Toward My Goals?
Take time to revisit both short- and long-term financial goals during your annual review. For example, are you saving for retirement, college, or a down payment on a home? Specify the target time horizon, estimated costs, and potential investment returns needed for each goal.
Clearly defining your goals helps determine the asset allocation and risk tolerance for your situation. The timeline also impacts how aggressive you can be. For instance, you may want to take on a higher degree of risk to potentially earn a higher return if retirement is 30 years away. But if you need funds for a down payment in three years, a more conservative approach may be more appropriate.
Revisiting your goals in detail ensures your investment plan is tailored to support your needs and adaptable as goals change over your lifetime.
Does My Asset Allocation Still Fit?
As part of your annual review, reexamine your target asset allocation across different classes like stocks, bonds, real estate, cash, and alternatives. Market performance over the past year may have shifted your portfolio allocation away from the original targets.
For example, if stocks significantly outperformed bonds in a bull market, your equity allocation likely increased while fixed income decreased. Rebalancing involves selling assets that have become overweighted and buying those that are underweighted to get your portfolio back to the target mix.
An optimal asset allocation evolves over time as goals and risk appetites change. Revisit yours annually to help keep your investment plan on track.
Am I Saving Tax Efficiently?
Taxes can significantly impact your net returns, so tax efficiency should be reviewed annually. Assess if you are maximizing tax-advantaged retirement accounts, like 401(k) plans and IRAs. Also evaluate tax-loss harvesting opportunities in your taxable accounts.
Discuss placing assets strategically between taxable and tax-deferred accounts. For example, placing fixed income and high-dividend stocks in retirement accounts may be more efficient.
In addition, consider speaking with your tax advisor for ideas on reducing your tax liability. Your financial advisor and tax advisor can collaborate to develop a customized tax planning strategy. Adjustments to improve tax efficiency could potentially save thousands in taxes over your lifetime.
Who Are My Beneficiaries?
One important part of a financial checkup is confirming your beneficiary designations are up to date. Review the named beneficiaries on retirement accounts like 401(k) plans and IRAs, as well as life insurance policies and other assets that pass on to heirs. Outdated beneficiaries can lead to assets going to unintended recipients. Beneficiaries should be reevaluated after major life events, like marriage, divorce, birth of a child, or death of a loved one.
You should also consider designating contingent or secondary beneficiaries if your primary beneficiaries are unable to fulfill their role. Discuss your intentions with loved ones and keep a detailed record of your designations. Ensuring your beneficiary selections align with your current wishes may help avoid complications down the road.
Regular financial checkups provide an opportunity to assess portfolio performance, risk levels, fees, tax efficiency, life changes, and progress on goals. With comprehensive reviews, the Kletschke Wealth Management Group can help ensure you are progressing toward your goals as expected. Contact Kim and Korey at Kletschke Wealth Management Group and let us show you how we can help!
Kletschke Wealth Management Group 700 4th Street, Suite 100 Sioux City, Iowa 51101 (712) 252-6931 [email protected]
Asset allocation does not ensure a profit or protect against loss. Rebalancing may have tax consequences, which you should discuss with your tax advisor.