Time for a Mid-year Investment Check
Here are three questions to consider:
Question 1: How have my investments performed so far this year?
Review a summary of your portfolio's total return (minus the fees) and compare the performance of each asset class against a relevant benchmark. For example, for stocks, you might compare performance against the S&P 500 (for domestic large caps), the Russell 2000 (for small caps), or the Global Dow (for global stocks). For mutual funds, you might use the Lipper indexes to see how your funds performed against a relevant benchmark. (Keep in mind that the performance of an unmanaged index is not indicative of the performance of any specific security; you can't invest directly in an unmanaged index.)
Consider any possible causes of over, or underperformance in each asset class. If any result was concentrated in a single asset class or investment, was that performance consistent with the asset's typical behavior over time? Or was recent performance an anomaly that bears watching or taking action?
In addition, make sure you know the total fees you are paying (mutual fund expense ratios, transaction fees), preferably as a dollar amount and not just as a percentage of assets.
Question 2: Do I need to make adjustments?
Review your financial goals (e.g., retirement, college, home purchase) and the market outlook for the remainder of the year. This will allow you to determine whether your investment asset mix for each goal will continue to meet your time frame, risk tolerance, and overall needs. Of course, no one knows exactly what the markets will do in the future, but by looking at current conditions and projections for interest rates, inflation, and economic growth, you will be able to identify factors that could influence the markets in the months ahead, with this broader perspective, you will be able to update your investment strategy as needed.
Remember, even if you've chosen an appropriate asset allocation strategy for various goals, market forces may have altered your mix without any action on your part. For example, maybe your asset allocation preference is 60% stocks and 40% bonds, but now due to investment returns your portfolio is 75% stocks and 25% bonds.
To return your asset mix back to its original allocation, you may want to rebalance your investments. This can be done by selling investments in the overrepresented classes and transferring the proceeds to the underrepresented asset classes, or simply by directing new contributions into asset classes that have been outpaced by others until the target allocation is reached. Keep in mind that rebalancing may result in commission costs, as well as taxes if you sell investments for a profit.
Asset allocation does not guarantee a profit or protect against loss; it is a method used to help manage investment risk.
Question 3: Am I maximizing my tax savings?
Taxes can take a bite out of your overall investment return. You can't control the markets, but you can control the accounts you use to save and invest, as well as the assets you hold in those accounts and the timing of when you sell investments. Dividing assets strategically among taxable, tax-deferred, and tax-exempt accounts may help reduce the effect of taxes on your overall portfolio.
To conclude, taking the time to periodically review your portfolio in good economic times as well as bad, will allow you to feel confident knowing that your investing strategy is attuned to current market conditions and your overall needs.
All investing involves risk, including the possible loss of principal, and there can be no guarantee that any investing strategy will be successful.
Presented by Sara Romaine. The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Securities offered through Commonwealth Financial Network, Member FINRA/SIPC.
This communication is strictly intended for individuals residing in the state(s) of CT, MA, NH and PA. No offers may be made or accepted from any resident outside the specific states referenced.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019.