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If
you are serious about achieving your
long-term financial goals, you should
work with an investment professional,
someone with the training, resources and
objectivity to help you choose the right
mix of investments for your individual
needs and preferences. You need to meet
periodically with your investment
professional to gauge your progress, and
you will get more out of these meetings
if you know what to look for and what to
expect.
To prepare for a portfolio
review, you may need to bring last
year's tax return, recent statements
from your 401(k) or other
employer-sponsored retirement plan, life
insurance policies and other documents
suggested by your investment
professional. When the review begins,
here are a few things to look for:
Suitability of investments.
You need to make sure your investments
are suitable for your individual needs.
This may mean holding on to investments
that are, for the moment, not doing well
as defined by traditional measures, such
as stock prices. To cite a recent
example, from 2000 to 2002, many
investments were down and yet they were
still the right ones for some people to
own. This is not to say you should not
know your investments' recent
performance history, but it should not
be the determining factor in buy or sell
decisions.
Portfolio balance.
Investment portfolios are never static.
You should be open to making adjustments
in response to changes in your life such
as a child about to enter college or as
you move closer to retirement. It is a
good idea to review your holdings
periodically to see if they are still
properly balanced in a way to help you
make progress toward your goals. At the
same time, you need to make sure your
portfolio is still aligned with your
risk tolerance, making sure there is no
more risk than you would like.
Tax efficiency. Many
people do not pay sufficient attention
to the impact of taxes on their
investments. A portfolio review may be a
good time to examine your situation and
determine if you are fully taking
advantage of tax-deferred vehicles –
your 401(k) or traditional IRA –
tax-advantaged free investments such as
municipal bonds and tax-efficient
strategies such as holding stocks for
the long term to achieve the best
capital gains rate. Be sure to consult
with your tax advisor prior to making
any investment decisions.
Changes in
investment-related laws. Like most
people, you are probably busy with your
work and family, and you may not have
time to stay current on the
always-changing laws that can affect
your investment strategies. At your
portfolio review, your investment
professional can inform you of these
changes. In 2006, for instance, the new
Roth 401(k) was introduced; if you have
this option where you work, you may be
able to receive tax-free earnings on
some of your 401(k) dollars.
To stay on track toward your
important financial objectives, you will
find few events more helpful than your
portfolio reviews. |
