Time really does fly – it seems we were just shoveling snow off the driveway and now, the warm weather, changes in schedules and backyard parties have us reveling in summer. With all the commotion in the summer months, it’s easy to forget about what our investments are doing and where our financial plan stands right now. Before we know it, six months or more have gone by without evaluating our finances.
However, on the other hand, it can be hard to see changes if you look too often. As CFP® professionals, we often tell our clients, in addition to their annual portfolio review, a mid-year evaluation is recommended to see how their investments and life events are affecting their long-term financial plan. Summer is a perfect time to review your plan so you can feel confident about your choices all year long.
Don’t Set It and Forget It
Markets change as often, if not more frequently than our lives, and these changes don’t happen just once a year. We’ve seen many times when a mid-year review revealed potential weaknesses, opportunities and strengths in a client’s portfolio. You might discover that it’s time to rebalance –sometimes a tweak here or there is in order to stay on track and meet your goals.
When checking in mid-year, you will be more aware of where your target asset allocation stands, compared with where you are right now. It can also be a great time to re-evaluate your goals and determine if anything needs to change.
Make Portfolio Tune-Ups Unemotional
It can be hard to let go of things we are attached to, from your favorite car to that worn out band t-shirt from college. Similarly, it can also be difficult to let go of that stock you had high hopes for or the asset allocation you felt comfortable with years ago.
Unless your life has changed or you’re going through a significant transition, it is best to keep your investment decisions unemotional. A mid-year review will help you look at the big picture and evaluate things like whether you are on schedule for long-term savings goals such as college planning or retirement.
Life Changes More Than Once a Year
There are various events that can happen over the years that can significantly impact your financial obligations, such as expecting a new child in the family, your child choosing a college, moving out or getting married, or a loved one growing ill. Then, on the opposite end of the spectrum, you may have received a large inheritance or a significant raise at work.
Regardless, there are unpredictable factors that will positively or negatively influence your financial plan throughout the year, and it’s important that you’re able to adapt—which is why it’s crucial to regularly re-evaluate your investments to ensure you are making the most of your money.
Consider the impact of compounding – if you put $100 into your college savings plan each month, assuming an 8 percent return for 15 years, you would have saved nearly $35,604 toward a goal or college tuition for your kids.
Is Your Plan Performing?
Amidst the changes happening in the markets and government, a review of your investments will help you re-examine your risk exposure to see how it could affect your portfolio’s long-term growth and prepare you for potential changes ahead.
If you’re not diversified in the long run, you may be underperforming or taking on unnecessary risk. Check to see where each part of your portfolio stands. Part of diversifying your plan might include what you can change yourself. You might be able to afford to save a little bit more now or max out your 401(k) to take advantage of employer matching funds.
Talk with your CFP® professional and schedule your mid-year review soon. Don’t let any more time slip away. Changes you make now can help strengthen your financial plan and keep your long-term goals on track all year round.