As stocks exit the first month of calendar year 2015 on a negative note, now might be a good time to consider conducting a personal financial check-up, if you haven’t done it already. Some items on that list might include the following.
Rebalance your portfolio. Let us assume that one year ago, after analyzing your financial situation and setting aside an adequate amount of money for emergencies, vacations and short-term liquidity needs, you determined that approximately 65% of your remaining assets should be in the stock market with the balance in bonds.
For illustration purposes, let us say that your portfolio totaled $100,000. This would imply a $65,000 allocation to stocks and $35,000 to bonds as of the close of calendar year 2012.  Due to the approximate 40% rise in stocks during 2013 and 2014 as well as the 8% total return in bonds over that same period and assuming you kept pace with both averages, your portfolio would now total $128,800 and consist of $91,000 or 71% in the stock market and $37,800 or 29% in bonds. Assuming none of your objectives changed, the prudent move would be to rebalance your portfolio back to the originally intended weighting of 65%/35%. This would be accomplished by shifting $7,280 from the stock portion of your portfolio into the fixed income portion. The net result would now be $83,720 or 65% of the $128,800 in the stock market and $45,080 or 35% of the $128,800 in the bond market. Sounds like selling high and buying low to us—not a bad idea.
Take advantage of your employer-sponsored pension plan, such as the 401(k), 403(b) or 457. If available and if you are not doing so already, begin to contribute to your employer-sponsored pension plan at least up to a percentage that will maximize the employer’s matching contribution, if any. For individuals under the age of 50, the maximum amount that you can contribute is $18,000. However, for those of us “lucky” enough to be over 50, in addition to the $18,000 the Internal Revenue Service also allows $6,000 as a catch-up contribution.
Fund your IRA. If you do not have an employer-sponsored pension plan available where you work, maximize your Individual Retirement Account (IRA). For calendar year 2015 the Internal Revenue Service has determined that the maximum contribution for individuals under the age of 50 is $5,500 while those over 50 can contribute an additional $1,000. Furthermore, you have until the normal tax filing deadline of April 15th to fund your 2014 IRA. Pay yourself first.
Get religion. No, not in the spiritual sense, but have faith in a well thought–out and constructed investment plan. It is no wonder that the average investor severely underperforms the indices. Such investors watch the market on a daily basis.  They react to the devastating emotions of fear and greed, and they listen to all of the talking heads. Turn the television and radio off (except listen to us every Sunday morning from 10-11 a.m. on Radio 810 WGY and 103.1 FM—yes, that was a selfless plug) and spend more time with your family or doing the other things you love and less time tracking each and every movement of the market. You will certainly be much less stressed out and most likely get better returns on your investments.
Begin to get your tax information together. What better way to begin to get an idea of what is coming, versus what is going out, than assembling last year’s financial data. In addition to your tax information, get your checkbook out and review that. Assemble all of your credit card statements. Are you dining out too frequently? Are you hitting the ATM machine on a regular basis and spending money on items you could cook or brew at home? Watch the pennies, and the dollars will take care of themselves.
Review all of your insurances.  It’s the truck you don’t see coming that hits you! Get your insurance policies out and make certain that you are protecting your most important assets. If in retirement, check out long-term care insurance or perhaps a trust or a program of gifting. If your future earned income is your biggest asset, make certain that you have adequate life and disability income insurance. We prefer term the majority of the time. Don’t forget your home and business. An adverse liability judgment will dig you a hole you might never crawl out from.  Make certain you are adequately covered.
THE BOTTOM LINE: During these cold winter months, review your finances from top to bottom in an effort to construct a financial road map. You must first determine where you are to plan where you are going. If you don’t, you are leaving your financial future to chance.
To contact Fagan Associates, please call 279.1044.


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