By: Laura Walton AFC®
We recommend reviewing your finances once a year. This year they may seem more naughty than nice but that doesn’t necessarily mean a lump of coal if, indeed, you have a financial plan and you are executing it.
This year’s returns have been flat at best. A client emailed recently having noticed that her portfolio was down year-to-date. She’s invested in a fund which targets her planned retirement in 2055, 40 years from now. The fund invests across all sectors of the market with an emphasis on growth today and safety as 2055 gets closer; this is a good choice in her case, one that will serve her needs well over the next 40 years. The important question is not what your return was this year but are you invested properly to meet your goals.
As you know, we can’t forecast what the market will do in any given year but we can draw some conclusions over time. For example, we know that the S&P 500 has averaged a 10.1% return from 1926 to 2014 but in only a handful of years does the return come within even 2 points of that average – see below:
In any given year or on any given day, the market can be up or down. That number doesn’t define your actions. Instead your plan does. Rather than react to a number, review your plan to make sure it’s designed to meet your goals and re-balance your investments to return them to your target allocation.
In addition to re-balancing your investments, we encourage you to assess your overall finances by completing a Personal Net Worth statement. It’s a great snapshot of your financial health. If you have a mortgage, you’ll see your net worth increased by the amount you paid to principle every month. Similarly, if you’ve been paying down student loans or credit card debt while building an emergency fund, you’ll see a positive shift. It’s encouraging! Haven’t done a Net Worth statement in a while? Drop me an email and I’ll send you my easy-to-fill-in-the-blank form that you can use and re-use over the years.
If you’re making a list and checking it twice, be sure to start with your financial plan. And if you don’t have a plan, please, please, please put that on top of your list!