Do you have a financial plan for 2014? If not it is time to make one for yourself and your family. How do you know where you will need to be if you do not have a financial plan? This is a basic financial matter and one that does need to be addressed if you are to achieve your financial goals in 2014. First you need to establish what your financial goals will be and then you need to examine where you are at currently. Your portfolio should match your goals, age and overall risk tolerance. Now from those three items you can see that your financial plan needs to be a living breathing document as these three elements will and do change as we age or have significant life events such as getting married, divorced or having children. So you need to review your financial plan at least annually or when you have a life event. If you will need funds in retirement sooner rather than later you may want to invest more conservatively. Examine your risk comfort level and when you will need your funds when you create your financial plan.
Reviewing your asset allocation is something you can review when you look at your financial plan. If you are too far out of balance you may want to take the time to rebalance your portfolio. This allows you to buy more of the lagging assets while taking some gains in the ones that did well. Over time this will balance out and you will actually be better off down the road as most assets have values that go in cycles. Also as you get older or have life events you may want to shift from risky assets to ones that are more conservative. Evaluating your financial plan and asset allocation is something that can be done together on an annual basis or as events dictate.
Review that your assets are being held in the proper accounts. If you are employed you need to be participating in your company’s 401(k) or equivalent plan. And also everyone needs to have an Individual Retirement Account or IRA. Now here you have the option between a Traditional IRA or a ROTH IRA if you meet certain income guidelines. But regardless of any other factor everyone needs to be saving for their retirement. If you have children or grandchildren you would most likely want to save in a 529 Educational Savings Account that allows for tax free growth provided the funds are spent on allowed educational expenses.
Now you do not always want to be checking your portfolio’s performance but it is something that needs to be examined at least annually when you are looking at your asset allocation and financial plan. If a portfolio or asset is not performing at a level you are comfortable with you may want to consider changing the portfolio’s asset structure or eliminating the portfolio and creating a new one based on your annual review of things. In your financial plan you need to establish a percentage that you will allow a portfolio to lose before you will take action and limit further losses. Now you need to set this percentage at a level where you are not doing things to a portfolio all the time but at such a level where it will alert you that action needs to be taken.
And lastly maximize last year’s retirement contributions that you have control over after the end of the year like IRA’s. If you plan properly you can even adjust your 401(k) contributions if your employer allows this. But remember you always need to contribute to your 401(k) to the extent your employer will match your funds. Never leave free money on the table so to speak. For 2013 and for 2014 the IRA limits are $5,500 with an extra $1,000 for individuals 50 or over and $17,500 for 401(k) and an extra $5,500 for those 50 and over. And for IRA’s you will have until April 15th to make contributions for 2013.
It is never too late to start investing in your future and you need to have a plan if you are to succeed.
