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Between getting a kick start on your New Year’s resolutions and tying up loose ends from 2023, you’ve likely got a lot on your plate. But there’s one to-do item you don’t want to neglect: checking in on your investment portfolio and goals.
The stock market rallied over the last 12 months after a pretty abysmal 2022. While the recent ups and downs may have you feeling uneasy, financial advisors say one of the best ways to avoid making rash decisions is to regularly review your investments and ensure they fit your goals, time horizon, and risk tolerance.
The more we can put structure around our financial planning and take emotion out of the process, the better, says Carla Adams, founder and financial advisor at Ametrine Wealth.
“Set yourself up for success by creating feasible, realistic goals and celebrate your successes along the way, no matter how small,” Adams tells Business Insider.
Here are three check-ins investors can do to start 2024 off on the right foot.
1. Check in on your risk tolerance
Determining how much risk you’re willing to take on as an investor — and adjusting your portfolio alongside the ebbs and flows of life so it stays aligned with your risk tolerance — is an important part of investing.
For example, if you’re planning to retire or pay for a child’s college tuition in the next few years, your risk tolerance is likely decreasing, Adams says. When you need the money sooner, you can’t afford to take as much risk.
For the upcoming year (and beyond), determine if any life changes have changed how much you’re willing to invest in more risky assets like stocks.
2. Revisit your cash position
Once you’ve determined your risk tolerance, you can ask yourself whether or not you are keeping too much or too little cash on the sidelines.
Investors should start by knowing exactly what they receive each month from an income perspective and subtracting what they are spending, says Bill Van Sant, financial advisor and managing director at Girard, a Univest Wealth Division. If there is excess, they can keep some of that in a checking account for a cushion and set up an automatic transfer for some to go straight into a savings account, which are earning more these days amid high interest rates.
Then, take a look at how much you’re investing.
Markets have rallied from last year’s lows, so if you made changes to your investments in 2022 to hedge against volatility, it’s important to look at those allocations again and make sure you aren’t stuck in conservative vehicles while the market is moving higher, Van Sant says.
“After 2008, we saw investors stay in conservative vehicles out of fear for years and miss out on years of long-term gains,” he adds.
One approach to making your investing more regular throughout the year and taking emotion out of the process is dollar-cost averaging, which entails investing a fixed amount at regular intervals, regardless of share price.
“Having an investment account set up with automatic transfer as if it were a utility bill can alleviate the stress of trying to time the market,” says Dillon Haviland, a financial Advisor at TBH Advisors.
You should also look at your 401(k) or retirement plan and give yourself a raise, Van Sant says.
“Try to raise the percentage of your retirement savings so if you are saving 6% each paycheck, look to bump that up to 7% or 8%,” he adds.
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3. Rebalance your portfolio
Financial advisors also recommend regularly rebalancing your portfolio, which involves buying and selling securities such as stocks and bonds to get yourself back to your intended asset allocation goal.
For example, if your intended asset allocation is 80% stocks and 20% bonds, but market movements have shifted your portfolio to 85% stocks and 15% bonds, you can sell that 5% of stocks that are overweight and invest the money in bonds.
Ideally, investors only change their asset allocation when their risk tolerance changes, not based on their market predictions, Adams says.
She adds that investors should rebalance between one and four times a year — and the beginning of the new year is a good time to check in on your portfolio’s performance and make sure you’re on track to meet your goals.