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Ten key discussion points for your mid-year review

Jun 28, 2024 | Angie O'Leary


A mid-year review can be a perfect time to reassess and adjust your financial strategy.

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A lot can happen in six months, both with the markets and in life. Maybe you’ve welcomed a new baby into your family, lost a family member or changed jobs. Or perhaps the world is experiencing a period of high inflation or market volatility.

Checking in with your financial advisor mid-year for a review of your investments and wealth plan provides a valuable opportunity to evaluate your financial goals and strategies and make adjustments as needed.  

Here are 10 topics to consider discussing with your financial advisor at your mid-year check-in:

1. Make appropriate inflation adjustments

Before the pandemic, you likely had assumptions of a two-to-three percent inflation rate built into your long-term portfolio. As the cost of living has climbed in recent years, you may want your assumptions to reflect an elevated inflation rate going forward. This is especially important for retirees or shorter-term investments. Using what-if scenario planning to adjust to various inflation rates can help you understand the implications on your long-term plan.

Inflation also impacts home and auto values. Make certain your insurance coverage remains sufficient to meet replacement costs.

2. Focus on your “real” returns

Asset classes may respond differently during periods of high inflation. Your advisor can help you assess whether your portfolio is effectively positioned to continue to earn competitive, inflation-adjusted (or “real”) returns over the long run.

3. Review your expenses

You may need to adjust your spending to reflect the fact that most things are more expensive than they were even a year ago. Setting money aside to invest toward your most important goals should remain a top priority. If your budget is strained due to higher living costs, consider adjusting your spending plan to keep your long-term financial goals on track. You may have to postpone discretionary spending or big-ticket purchases, such as your kitchen refresh or that marquee destination trip.

4. Review your risk assumptions

This is a good time to take an honest assessment of your risk tolerance. During periods of market volatility, are you comfortable with how much your portfolio fluctuates? Are you willing to remain patient and wait for the market to calm down? Depending on your answers to those questions, you might want to work with your financial advisor to make appropriate adjustments to your portfolio.

5. Review how interest rates may affect your debt

When interest rates rise, any loans subject to variable interest rates will likely become more expensive, while falling interest rates typically have the opposite effect. Interest rates also impact housing costs, which can include an adjustable-rate mortgage on your home. Rates also vary on most college loans underwritten by private lenders. Make adjustments to your spending plan to account for these potential changes.

6. Consider rebalancing your portfolio

Regardless of market conditions, your asset allocation mix should remain in balance with your target allocation, based on your risk appetite and time horizon. This is true in both up and down markets. For example, when interest rates increase, you will likely find your bond portfolio has declined in value. As investments perform differently with market conditions and rates, the asset mix shifts away from your target allocation. This may require you to rebalance your overall portfolio, reduce positions that have grown beyond the initial levels you established, and add to positions that currently represent less than the original allocation percentage.

7. Protect your retirement income strategy

Market turbulence can especially take a toll on those in or near retirement. If you must withdraw funds from your investments to meet current income needs (or plan to shortly), you need to be aware of “sequence of returns” risk. This is the risk of suffering a significant portfolio decline early in retirement while withdrawing funds from your investments. Your portfolio can rapidly decline in value when this occurs, putting your long-term retirement income strategy at risk.

A ready access line of credit may be a good option to hold you over until the market recovers. Also, consider adding to your portfolio sources of reliable income. This might include the addition of an annuity with a guaranteed income benefit. Ensuring you are positioned to have the income you need in down markets is a smart move.

8. Kick tax planning into high gear

Volatile markets may offer an opportunity to sell investment positions held in taxable accounts to harvest tax losses. You can apply those losses to offset other realized tax gains. If you have more losses than gains, you can apply up to $3,000 of losses to reduce ordinary income, and/or carry those losses forward to offset gains in future tax years. This strategy makes the most sense if you determine that specific positions are no longer a good fit for your portfolio. Be sure to comply with wash sale rules if you intend to repurchase the holding at a later date.

You’ll want to conduct a mid-year assessment of your tax situation. Tax brackets are adjusted higher by the IRS each year, but those adjustments don’t reflect the current rate of inflation. If your income has increased in line with or at a faster pace than inflation, you may want to double-check your tax withholding or estimated tax payments to avoid a surprise bill when you complete your tax return next April. This so-called “bracket creep” can also be an issue if state income taxes apply where you live. Check with your tax advisor.

9. Explore Roth IRA conversion opportunities

Roth IRA conversions (moving money from a traditional IRA to a Roth IRA) can be more effective if done at the right time. This is a taxable transaction, as ordinary income taxes apply to earnings represented in the converted amount. If you’ve given back some gains in your IRA portfolio, the current tax liability of a Roth conversion is reduced. It may be an advantageous time to convert what you can. Be sure to consult with a tax advisor to fully understand the tax implications.

10. Pay more attention to how you manage excess cash

When rates rise, investors may earn more on their cash balances. You want to hold sufficient cash or have liquidity options to meet emergency needs (over three to six months) and, if retired, meet income needs over the next one to three years. Any additional cash should be put to work as part of your asset allocation mix to help you achieve your long-term investment goals.

Midway through the year is a perfect time to reassess your current financial strategy. Major changes aren’t mandatory, but a mid-year review that discusses these and other pertinent issues in your financial life is a great way to make sure you’re on track to reaching your goals.

A version of this article was first published in MarketWatch .


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