It’s Time For Your Annual Financial Checkup

Over the weekend, my wife commented to me that I seemed particularly distracted. “It’s January,” I told her. “Time for the annual financial checkup and subsequent planning.”

January is always the busiest financial month for me. I am reviewing the previous year, evaluating every aspect of our finances, and planning for the year ahead. I am also getting tax documents together and deciding whether I need to make any final moves before April 15.

Here are a few of the things I do every January to ensure that our finances are on track. My methods are worth emulating, for investors of all types. This advice is also complementary to a recent article by my colleague John Persinos – 7 Survival Steps for The Next Market Panic.

1) Review last year’s performance and the current allocation.

During the year, certain sectors will outperform others. This will change the allocation of your portfolio. There are a number of tools that you can use to get a clear picture of your portfolio’s weightings.

I personally use Fidelity’s Full View feature, which allows me to obtain a detailed look at my portfolio’s holdings. For example, this tool tells me that I am 65.7% invested in U.S. stocks, and among other things I have a 15% concentration in the health care sector. It also tells me that two stocks in my portfolio have an individual weighting on my net worth of more than 5%. More on that below.

2) Review short and long-term objectives.

As you head toward retirement, your investment objectives should change. Assuming your portfolio needs to sustain you through retirement, you should start shifting it to more conservative investments.

Review your allocation and adjust accordingly. But that also goes for other major life changes. My youngest son will be headed to college in a year. I started a 529 plan for him at birth, and it is aggressively invested.


Because I will need that money over the next five years or so to pay for his education, I need to shift it to more conservative investments. In the event of a bear market, aggressive investments can decline by 50% or more. You can’t afford to take a hit like that for funds you will need over the short term.

But you also need to think about whether your investment options are too conservative. If you are young and have a lifetime of investing in front of you, focus on more aggressive investments that should give you better long-term performance.

If you have a young child that may go to college in 16 years, a modest contribution to a 529 plan can grow significantly to help offset those higher education costs. For my youngest son’s education, I invested in technology and health care mutual funds for the first few years of his life. Those initial investments have grown more than 10-fold, which is a huge help in paying for college.

3) Determine changes that should be made in your portfolio and put those plans into action.

I caution people not to keep more than 2%-3% of their net worth in any individual position. If it’s an investment fund like a mutual fund or exchange traded fund (ETF), it’s fine to go beyond these recommendations because these funds are diversified. But having too much in a single stock is just too much risk.

Believe it or not, there was a time that Enron was viewed as a fantastic investment. There are plenty of tales of people who lost most of their net worth because they had it all in company stock.

Read This Story: Lessons From The Worst Stock Crashes Ever

As I noted above, I have two positions that have grown to be above 5% of my net worth. I set a plan into motion to reduce that back to a more conservative number. That can involve just selling them outright, but I prefer a different approach. In my case, I started selling short-term covered calls against these positions.

As I am waiting for these positions to be called away from me (at ~10% above their current price), I am collecting premiums on them. It’s essentially like boosting the dividends on these positions, albeit at the risk that they may decline in value and are not called away. In that case, I will just keep selling calls until they are.

4) Search your portfolio and your budget for money that is inefficiently allocated.

All of us have money that can become inefficiently allocated over time. Maybe it’s a $5,000 car loan with a 5% interest rate while at the same time $5,000 is parked in a no-interest savings account. There’s a potential guaranteed 5% return. Pay off the loans as long as you can do so and still maintain an emergency cash cushion in place.

Check your car and homeowner’s insurance to see if maybe you can get a better deal elsewhere. Personally, my January review revealed that I had let some cash build up in a non-interest bearing account. I transferred that amount to my Fidelity Brokerage account where it will at least generate some interest. It will earn me about $500 more this year than if I hadn’t moved it, while serving as my emergency cash fund.

5) Get those tax documents together and make any final IRA contributions before April 15.

My hyper focus on personal financial matters lasts from January until my taxes are done. During this time I am receiving tax documents, reviewing all sources of income and any potential deductions, and determining whether to make any final retirement contributions (some of which can be made right up until the tax deadline of April 15).

Once your taxes are done, adjust your withholding as needed. It might feel nice to get a big tax refund, but you would be far better off reducing your withholding and investing that money during the year into the market. That’s a better prescription for building long-term wealth.

Editor’s Note: As you can see from the above article, Robert Rapier is a source of valuable investment acumen. But he’s not the only expert on our staff who can help you make money. Consider our colleague Jim Fink.

Jim Fink is chief investment strategist of Options for Income, Velocity Trader, and Jim Fink’s Inner Circle.

Over the past 50 months, Jim’s trades have racked up a “win rate” of 84.68%. That’s unheard of for most investors, in any asset class.

In fact, Marketocracy, a company that audits the performance of top investors, says that “a winning percentage of 66% would be excellent and would rank among our best investors.” Jim’s win rate is well above that figure of excellence.

Want to learn the details of Jim Fink’s next trades? Click here now.