A 90-second read by Anthony Benante, CFA: What 5 things should you be thinking about at the end of the year when it comes to your finances?
- Review your personal budget and commit to a savings plan for 2020
a. On January 1, write down the balance in your checking account. Do this on the first of the month for the next three months. After you incorporate your income for the period, as well as take note of any cash withdrawals from other accounts, you can get a general sense of what your monthly spending is.
b. We work directly with our clients at Baron to help understand how their budget and all of their financial assets work together. If you would like a budget sheet (either electronic or hard copy), let us know.
- Review your long-term investment strategy
a. Is the long-term strategy in place for you still right for your specific circumstance? Are you going to be making any large purchases coming up in the New Year? Are you thinking about revisiting your risk tolerance - becoming more aggressive or conservative?
b. At Baron, we use a customized approach to design client portfolios. We not only consider potential return, but also risk, as well as how the investments complement each other. Having a long-term investment strategy is critical for investing success and provides a guide for when markets act unexpectedly or make a major directional move.
- Rebalance your investment accounts
a. Rebalancing brings the portfolio into alignment with the original target weights of each asset class. It also helps to reduce long-term portfolio volatility.
b. Client portfolios at Baron are rebalanced on a contingent basis. This means the actual holdings are regularly compared to the recommended strategy. Triggers are in place to help identify when investments deviate too far from strategy and trades are placed. This keeps client portfolios close to their strategy. Most individuals do not follow this disciplined approach.
- Review your tax situation for the year and take advantage of tax trading in your investment accounts, if possible
a. Understanding how your investments may impact your tax circumstance is important. The last trading day for 2019 is Tuesday, December 31st. That is the last day you can make any changes to your portfolio for your 2019 tax return.
b. Throughout the year, we review Baron clients’ tax situations and see if any strategic trades can be made to help reduce tax-burdens. As year-end approaches, we look to minimize tax impacts when possible. However, our main focus is adhering to portfolio strategy, while minimizing taxes when possible.
c. In 2018 a new tax bill was passed, which included a lot of changes that may have impacted you last year. It’s worthwhile to check with your accountant or tax preparer to see if they recommend any changes prior to year-end or to your tax plan for 2020.
- If you are 70 ½ or older, or if you have inherited a tax-deferred account, make sure you understand how required minimum distributions (RMDs) apply to you
a. If either of the above applies to you, you will need to take an RMD. Contact your advisor or custodian to help understand the amount and how to take your RMD. It is important to take your required minimum distribution in order to prevent any penalties from the IRS.
b. At Baron, we advise our clients on the timing, the structure (lump sum or regular distributions throughout the year) and the correct dollar amount needed to be withdrawn from retirement accounts requiring RMDs.
If you have any questions, don’t hesitate to contact the Baron Financial Group Team.