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How to Prepare for a Review with your Advisor

Connor SmithNovember 8, 2019

Financial Planning

Preparing for an annual or semi-annual financial review may be easier with a checklist to help you focus on important matters.  With that in mind, here is a list of key considerations that you may want to discuss with your financial advisor.

Do I Need to Rebalance my Asset Allocation?

Depending on the performance of your investments so far this year, you and your advisor will examine whether your mix of stocks, bonds, cash, and other assets is close to your target.  If not, it may be time to rebalance to a mix that more closely resembles your desired exposure to risk and potential return. Rebalancing can be accomplished in two ways: You can sell existing assets and use the proceeds to bring your portfolio closer to your desired mix. Or you can leave your portfolio as is and allocate new investments to the areas that you want to increase. Rebalancing may involve tax consequences, especially for non-tax-deferred accounts.

At HFA, our investment team sets target weightings for the different asset classes we use in our clients’ portfolios.  We also monitor our clients’ portfolios on a daily basis to ensure the weighting does not deviate from our set guide rails.  When an asset class deviates a certain percentage from its target weighting, our investment team evaluates if rebalancing makes sense.  This method of rebalancing is called threshold rebalancing.

Am I on Track to Fund My Retirement?

Making sure you are on track to amass the assets you will need for your later years should be one of your key concerns. If you participate in an employer-sponsored retirement plan, consider investing as much as you can afford. If you do not have access to an employer-sponsored plan, or if you do and can afford to contribute even more, consider funding an individual retirement account (IRA).

We recommend reviewing your financial plan once a year to make certain you are on track to achieve, or sustain, your desired retirement spending.  With our financial planning software, Navigator, our clients can not only make sure they are in good shape for retirement, but they can also receive help answering what ifs, such as: “Can I afford a second home in retirement?” or “Could I retire earlier and still be able to spend as much as I desire to?”.

What were my Yearly Capital Gains and Losses?

If your year-end planning entails selling certain assets, be aware of rules regarding capital gains and losses. Gains on investments held for less than one year – known as short-term capital gains – are taxed as ordinary income. Those gains on investments held for one year or longer, or long-term capital gains, are taxed at a maximum rate of 20% (and could be lower depending on your tax bracket), for federal income tax purposes. State tax rules may differ. On the federal level, capital losses, which offset capital gains, are netted against each other. If net capital losses still remain, up to $3,000 may be used to offset ordinary income. Capital losses not used in a given year can be carried forward to future years. Note that different rules apply for gains on the sale of collectibles or qualified small-business stock.

For clients who utilize our tax preparation services, we prepare tax projections throughout the year, as necessary, to make sure their tax liability is covered. When one of our clients has a sizeable taxable gain realized, we typically prepare a tax projection to determine if they are in good shape, or if action needs to be taken to make sure they will not owe any interest or penalties at tax filing.

Am I Taking Full Advantage of Tax-Advantaged Accounts?

Remember that certain types of investments receive favorable tax treatment. Pre-Tax employee contributions to a 401(k), for example, are deducted from your paycheck before taxes are assessed, which lessens taxable income during the year the contribution is made. Contributions may potentially grow free of federal income taxes until qualified withdrawals are made during retirement. In contrast, Roth 401(k) contributions do not lessen your taxable income when the contribution is made.  However, if you are age 59 1/2 or older and have maintained the account for a minimum of five years, qualified withdrawals from Roth accounts are tax free.

For individuals who do not have access to a retirement plan through their employer, several types of retirement accounts exist.  Even if you do have access to an employer sponsored retirement account you may be able to contribute to a retirement account outside of your employer.  At HFA, your advisor can educate you on what types of accounts are available and help determine what type of retirement account makes the most sense to contribute to, given your unique financial situation.

Have there been any Major Changes?

If there are major changes regarding your personal financial situation, please be sure to discuss these with your advisor.  Changes may relate to the following items, policies or documents:

  • Wills, Trust Documents and Powers of Attorney
  • Life, Disability and Long-Term Care policies – both personally owned and offered through your employer
  • Employer Sponsored Retirement Accounts, Pension Plans or Deferred Compensation Plans
  • Employer Stock Option plans
  • Employee Benefits

Perhaps you have additional concerns unique to your situation. If so, we welcome you to contact our office at 610-651-2777.  If you’ve found this article insightful, please feel free to share it with friends, family members, or colleagues.

*This article is an update to a HFA blog post dated September 4, 2015

Source:  Wealth Management Systems, Inc.

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