Investment and tax moves to make in the new year
As taxpayers have recently submitted or by Tuesday at midnight will submit their tax returns for 2016, it might be considered a good time to conduct a personal financial check-up. Some items on that list might include the following.
Rebalance your portfolio. Let us assume that a few years ago after analyzing your financial situation and setting aside an adequate amount of money for emergencies, vacations and short-term liquidity needs, you determined that approximately 65% of your remaining assets should be in the stock market with the balance in bonds. However, given the run-up in the stock market relative to the bond market you may have seventy-plus percent of your account in stocks as compared to bonds. Consider selling off some of the equities and investing the proceeds into the bond market in a propor- tion that will bring your allocation back to the initial 65:35 ratio. Sounds like selling high and buying low to us, not a bad idea.
Take advantage of your employer sponsored pension plan such as the 401( k), 403( b) or 457. If available and if you are not doing so already begin to contribute to your employer sponsored pension plan at least up to a percentage that will maximize their matching contribution, if any. For individuals under the age of fifty the maximum amount that you can contribute is $18,000. However for those of us “lucky” enough to be over fifty, in addition to the $18,000 the Internal Revenue Service allows an additional $6,000 as a catch-up contribution.
Fund your IRA. If you do not have an employer sponsored pension plan available where you work, maximize your Individual Retirement Account. For calendar year 2014 the Internal Revenue Service has determined that the maximum contribution for individuals under the age of fifty is $5,500 while those over fifty can contribute an additional $1,000. Furthermore, you have until the normal tax filing deadline of April 18th to fund your 2016 IRA. Pay yourself first.
Get religion. No, not in the spiritual sense but have faith in a well thought out and constructed investment plan. It is no wonder that the average investor severely underperforms the indices. They watch the market on a daily basis. They react to the devastating emotions of fear and greed and they listen to all of the talking heads. Turn the television and radio off (except listen to us every Sunday morning from 10:00a – 11:00a on Radio 810 WGY and 103.1 FM [ yes that was a selfless plug]) and spend more time with your family or doing the things you love and less time tracking each and every movement of the market. You will certainly be much less stressed out and most likely get better returns on your investments. Know where your money goes. Pay yourself first. What better way to get a head start on next year than to begin to track your pertinent data today. In addition to funding your IRA or employer sponsored 401( k), 403( b), get your checkbook out and review that. Assemble all of your credit card statements. Are you dining out too frequently? Are you hitting the ATM machine on a regular basis and spending money on items you could cook or brew at home? Watch the pennies and the dollars will take care of themselves.
Review all of your insurances. It’s the truck you don’t see coming that hits you! Get your insurance policies out and make certain that you are protecting your most important assets. If in retirement, check out long-term care insurance or perhaps a trust or a program of gifting. If your future earned income is your biggest asset, make certain that you have adequate life and disability income insurance. We prefer term the majority of the time. Don’t forget your home and business. An adverse liability judgment will dig you a hole you might never crawl out from. Make certain you are adequately covered.
THE BOTTOM LINE – Now is time to construct a financial road map. That said, you must first determine where you are to plan where you are going. If you don’t you are leaving your financial future to chance.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial adviser. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial adviser prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.