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Conclusion: The ABCs of Behavioral Biases
During this series, we have learned that our own behavioral biases are often the greatest threat to our financial well-being.
Reviewing your investment portfolio is a critical part of the financial planning process. Particularly during times of uncertainty and volatility, a portfolio review can evaluate and confirm your strategy, ensuring its alignment with your financial goals.
On the following checklist, we cover some key topics to consider during the review of your investment portfolio, including:
Do the goals, time horizon, and objectives of your investment portfolio need to be reviewed, updated, or documented?
If so, consider the following:
Do you need to assess or review your risk tolerance?
If so, consider your resources, earning capacity, philosophy, phase of life, and personal financial goals. Also weigh your capacity and need for risk.
Do you need to determine if you are on track to meet your goal(s)?
If so, consider the following:
If you are taking distributions, have the spending and distribution rates been reviewed?
Do you need to review performance measurement methods?
Do you have assets outside of your portfolio and/or future sources of income (e.g., pension, Social Security, annuity)?
If so, consider how these resources affect your risk tolerance. A reliable lifetime income stream, from outside of your portfolio, could offset portfolio risk.
Does your aggregate asset allocation need to be reviewed?
If so, consider reviewing your portfolio as a whole to help identify/ avoid concentrations, wash sales, etc.
Do the investment selection criteria need to be reviewed and updated?
If so, consider the investment philosophy and expense ratios for each investment, and the trading activity within each account.
Do the investment monitoring criteria need to be reviewed and updated?
If so, consider the performance relative to peers and any changes to the investment manager team.
If you rebalance your portfolio, does the rebalance plan need to be reviewed?
If so, consider whether this should be done periodically, or when allocations drift from their targets by a predetermined amount.
Do you have tax-exempt, tax-deferred, and taxable investment accounts?
If so, consider choosing asset location to maximize returns (e.g., hold tax-efficient assets in taxable accounts, hold income-producing assets or assets distributing large capital gains in tax-efficient accounts).
Are you taking or planning to take distributions from the account(s)?
If so, consider your allocation to cash, and strategies to raise cash.
Do you have any significant positions that represent a large portion of your portfolio (such as company stock)?
If so, you may be subject to concentration risk.
Do you have any investments you want to own or exclude from your portfolio?
If so, note your instructions and rationale (e.g., legacy, professional, tax considerations). If you would like to align your investing with ethical considerations, explore socially responsible investing (SRI), environmental, social, and governance (ESG), and impact investing strategies.
Do you need to open a new account specifically tied to an investment objective, or consolidate existing accounts?
If so, consider the following:
If so, consider tax-efficient income generation and distribution strategies.
Do you have a taxable account consisting of long-term positions with low cost basis?
If so, consider the following:
Do you have a taxable account and is your MAGI in excess of $200,000 ($250,000 if MFJ)?
If so, consider strategies to manage your net investment income (minimizing the 3.8% NIIT), including investing in municipal bonds, which are not subject to federal taxation (and in some cases state taxes).
Do you hold assets with a tax loss?
If so, consider the following:
Are you trying to minimize your tax liability?
If so, consider the following:
Is there a plan in place during periods of market decline?
Do you need help understanding investment fees and charges (including management, transactional, wrap, 12b-1, sales loads, commissions, etc.)?
Do you need to assess how future contributions will be handled? Do/did you participate in any employer stock plans?
If so, monitor your rights to shares, their tax treatment, and the percentage of your overall portfolio that consists of employer stock, mitigating any concentration.
Does the frequency of any account reviews and monitoring need to be updated?
Do the roles and responsibilities of interested parties, professionals, fiduciaries, or others involved need to be reviewed?
If you have any questions after reviewing this checklist, please reach out to our professional team anytime at hello@impactadvisorsgroup.com or (833) 5IMPACT.
This checklist was prepared and first distributed by fp PATHFINDER.
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