The spring-cleaning concept is not confined to a house or garage. Spring is a great time to review finances and ensure your portfolio is in order. It’s easy to forget about 401(k), IRA, and other retirement accounts. Monitoring them regularly ensures they are working to your benefit. Here are some other tips for financially cleaning house.
Rebalance assets
This exercise redistributes holdings and prevents a portfolio from going to aggressive or conservative extremes. According to Forbes.com, financial experts suggest rebalancing if a portfolio has drifted between 10 and 15% of the original asset allocation. Risk tolerance is a portfolio’s potential for return against an individual’s financial needs and goals and another consideration for rebalancing retirement accounts. For example, stocks fluctuate more and carry higher risk in the short term, but they can yield greater returns in the long term. An individual’s age and long-term goals can determine the percentage of stocks in a portfolio for the risk.
Consolidate similar accounts
Combine funds that have the same investment goals. Individuals with a 401(k) from a previous job should roll those funds over to their current 401(k) for easier money management and greater earning power. Those nearing financial milestone birthdays, such as age 55 or 59 ½ should consider their additional 401(k) options. Under the IRS rule of 55, people who retire early or leave their job during or after the year they turn 55 can withdraw money from their 401(k) penalty-free within the required guidelines. The same goes for those who are 59½ or older. Old 401(k) funds can also roll into a traditional or Roth IRA. This can offer an array of investment options.
Review investment management costs
Many investments like mutual funds and 401(k) accounts carry management costs. Even charges of only 1% of assets per year can add up over time. Cost-friendly alternatives, like an S&P index fund versus a U.S. large-cap fund can produce a better return on investment with the lower fee. In the case of 401(k) plans, 95% of participants pay between 0.5% and more than 2% in annual charges. To illustrate, a balance of $100,000 with an 8% annual rate of return and 2% in fees would only grow to $574,350 in 30 years. The same balance would increase to $761,225 with 1% in fees.[1]
Cull underperforming stocks
Stockholders may fail to keep up with the standing of the companies they own stock in over time. A periodic review of individual holdings and shedding poor performers will keep stockholders on the right path to retirement, even if the initial result is a loss. Capital losses are tax deductible. If the money goes toward a better investment, it’s still a win.
Reexamine Your Estate Plan
People and circumstances change over time. Confirm that your estate plan is up-to-date and reflects your intentions. Your designated beneficiary may have changed through marriage, divorce, or children. For example, you may want to divide your estate equally among your children, but your oldest is the only one named in the initial documentation. Perhaps you wish to leave money to your favorite charity. Beneficiary designations trump will and trust directives, so you must update your retirement account beneficiary regardless of whether a current trust or will is in play.[2]
Meet with a Financial Planner
Managing retirement accounts can be overwhelming, especially without regular maintenance. Consistently checking your assets and making occasional moves now can pay dividends in the future. But there is no need to go it alone. Spring is the perfect time to contact a wealth management professional and put a periodic financial wellness check into your rotation.
To improve your wealth management strategy or clean up your financial affairs, call SHP Financial. We will assess your accounts and assets, present alternatives, and tailor a plan especially for you. Sign up for a complimentary financial review and get answers to your questions.
[1] https://www.investopedia.com/articles/personal-finance/061913/hidden-fees-401ks.asp
[2] https://www.thebalance.com/why-beneficiary-designations-override-your-will-2388824
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