The winter doldrums – that seasonal lull when the New Year has started, the Super Bowl’s been played, the gardens aren’t yet planted and spring training hasn’t started – is a great time for Central Florida investors to take a look at their portfolios and consider their finances for the year ahead.
This simple but vital money checkup can be summarized in three words: rebalance, reflect and remain calm. The surging stock market of 2021 left most people with a happy problem – turbocharged results for many stocks most likely threw portfolios out of whack. While I haven’t heard anyone complain about the S&P 500’s 28.7% gain and the Dow Jones Industrial Average’s 18.7% climb last year, these outsized returns should prompt long-term investors to take some profits and rebalance their portfolios and take out cash for major expenses they expect in 2022.
Rebalancing is a simple but important part of an annual financial checkup. Investors – and their financial advisers – set up an initial allocation of invested assets, usually by percentages, so your investments might be something like this: 65% stocks or stock-based funds, 30% bonds or bond funds, and 5% cash. The key is maintaining a diversified portfolio, so you aren’t dependent on one type of investment. You wouldn’t put all your money into one stock and hope its value keeps rising, would you? Focusing on fixed income (bond) investment with strong credit quality and relatively short durations and maturities, and a variety of equity (stock) investments that aren’t concentrated on any one company or business sector.
After a year like 2021, the stocks portion of your portfolio will very likely be more than 65% of your invested net worth. Working with your adviser, it’s fairly easy to get your assets back to their original allocation, while also taking time to see if there are any big expenses you may have over the rest of the year. Ask yourself these questions:
- What’s your tolerance for risk?
- What’s your time horizon?
- What are your anticipated cash needs?
- What’s your tax situation?
Some of the answers may affect your portfolio allocations, and a good adviser can help.
If you have a big expense on the horizon, like a house purchase, tuition for a child or grandchild, property taxes, other tax liabilities, paying for a wedding, major home repairs or medical costs, you can convert some of 2021’s stock profits to cash while you rebalance your portfolio. Keeping your cash needs outside the market will ensure they can be met, regardless of what might happen with your investments.
And, when you ponder the future, look past the headlines and remain calm. Right now, many factors are affecting markets, and 2022 will probably be more volatile than last year. There’s a near certainty that the Federal Reserve will raise interest rates, geopolitical disputes are roiling markets, and inflation is on everyone’s mind.
It’s always been my policy to help investors take a long view, and in volatile time periods, it’s easier to weather that volatility with a well-diversified portfolio. So, when you’re doing your annual investment tune-up, don’t think about a bad week for the Dow, or a sudden slide on the NASDAQ. The greatest source of help for investors is time – the more time you have, the more it gives you the ability to weather a storm.
Patrick LaPorta Bio:
Patrick is a graduate Magnum Cum Laude from Siena College where he holds a BBA in Accounting and Albany Law School where he received his J.D. He has over 30 years of experience dealing with estates, trusts and estate planning as an attorney and his 22 years with Trustco Bank’s where he is responsible for the day to day operations of Trustco’s Financial Services Department. Trustco Bank operates 147 branches in total, 53 located within the state of Florida, 39 of which are in Central Florida. To learn more visit www.TrustcoBank.com or call 407-794-1441