Cheers To A New Year, And A New Financial Plan

Will 2016 be the year you change your eating habits? Drink less? Get your finances in order? At Personal Capital, we know a thing or two about finances, so grab a candy bar and a glass of champagne, and make a toast to your financial health.

I’ve worked in this industry for a long time, and I’ve learned a few lessons along the way that have changed the way I approach my financial life. So here are my top tips to help you kick off 2016 on the right foot, as well as a couple of things to avoid in the coming year: 

1. Take stock of what you have.

Before you can make a financial plan, you need to know what you have. Gather all of your account information and assess your balances to get a current view of your entire net worth. Think of it like dieting – it’s really difficult to define a great diet plan and measure your progress if you never get on a scale. You need to understand your starting point.

2. Assess your asset allocation.

Ask 100 people on the street about their asset allocation, and you’ll likely find that 99 or 100 of them don’t know what they’re holding or where their portfolio is over- or underweight. But, asset allocation is perhaps the single largest driver of your investment success. Personal Capital’s tools do the analysis for you automatically once you link your investment accounts. You no longer need to manually enter your ticker symbols into a spreadsheet and try to classify them yourself. With the time you save, you’ll be able to sneak in a few more visits to the gym!

3. Find out what you pay in fees.

It’s not just what you save, but how much you pay in fees that may determine your ultimate success. You can work with an advisor or use tools like Personal Capital’s Fee Analyzer to determine how much fees will eat away at your nest egg over the long term. 

4. Revisit the past.

Sit down and take a look at the full calendar year for 2015 in order to uncover all of the expenses you actually faced, and note what you saved throughout the course of the year. Most people tend to think in terms of monthly expenses, but it’s only when you look at an entire year that you can capture all of the one-offs that most people forget. Use this information to set your 2016 spending and saving resolutions.

5. Devise your game plan.

Set your financial plan. What are you doing for 2016, and how will that help you achieve your longer-term goals? This is a good time to meet with your financial advisor if you have one.

Resolutions 2016 – What Not To Do

Once you’ve tackled these five tasks, keep investing not-to-do’s in mind too. Here are two key mistakes investors should resolve to avoid in 2016:

1. Don’t get greedy.

I’m not going to make a market prediction, but 2016 may be the year that we see a market slowdown. Of course it also may be the year the market shoots to new highs. No matter the market outcome, it’s important to maintain a diversification and asset allocation strategy that is appropriate for your long-term goals – regardless of what your barber or experts on TV say about the next hot stock to buy. 

2. Don’t overweigh your portfolio in U.S. holdings.

We continue to see the U.S. outperforming the rest of the world, and many investors believe this will continue forever. But statistics show that it won’t – all assets eventually revert to the mean. That’s why at Personal Capital, we regularly work with our clients to overcome this bias in their portfolios.

It’s important to realize that whatever has recently performed the best usually does the worst down the road. It’s not uncommon to see long cyclical trends like the U.S. stock market’s recent performance, but they always revert. The capital markets are driven by supply and demand – at some point people will look for a better upside somewhere else. So, it’s critical to make sure your portfolio can weather this reversion.

Put Your Best Financial Foot Forward In 2016 

As I mentioned in my last post, when it comes to the markets, the only constant is change. That’s why it’s so important to be prepared for the future, stay the course and ensure every decision you make is bringing you one step closer to achieving your long-term goals.

As we usher in the New Year, now is a great time to take a step back and assess your net worth, revisit your goals and rebalance your portfolio. Cheers to your financial health, for 2016 and many years to come.