With only a month left in the calendar year, now is the time when advisors should help clients reflect on their investment strategies with a dual perspective – one that encompasses both the strategic and tactical aspects of financial planning. People’s situations can change dramatically in a year. By combining both strategic and tactical perspectives into this planning season, you and your advisor can navigate year-end financial reviews comprehensively, helping to ensure your investments are recalibrated and realigned with both your long-term goals and the current economic landscape.
Let’s Start with Strategic Reflection:
During an annual review with your advisor, it is important to start by looking at and assessing the overall performance of your investment portfolio in the past year. Compare it to the expected returns based on your initial planning and benchmark it against similar indices. The goal of this process is to ensure that your current investment allocation aligns with your long-term strategic goals and needs.
For those already in retirement, assessing the sustainability of withdrawal rates becomes paramount, especially in the face of recent inflationary pressures. Are you withdrawing too much or too little to maintain financial security in your retirement years?
If you’re still in the accumulation phase, take a close look at your investment allocation to ensure it aligns with the expected future balances needed. Given the increased contribution limits to retirement plans, evaluate whether you are maximizing your savings potential. Engage in discussions about saving in pretax and Roth options, strategically planning for the upcoming tax year.
Moving on to Tactical Planning:
Looking ahead to the coming year involves considering market conditions, economic trends, and the political and regulatory environment. All of which can change in an instant. Assess and/or consult with your financial advisor on whether short-term investment plans should be adjusted based on these factors. Potential challenges such as the prospect of a recession, global political conflicts, and impending elections can’t be ignored.
Engage with your advisor in conversations about areas of opportunity and challenges for the upcoming year. Depending on your current situation and overall financial goals, an adjustment to your different asset allocation may be necessary to take advantage of higher rates while ensuring they don’t compromise long-term strategic planning.
Furthermore, ask your advisor to conduct a scenario analysis, such as testing your portfolio against historical market environments like the Financial Crisis of ’07 & ’08 or the early 2000s recession, which can help you understand the potential impact of similar events on your overall financial plan.
The Bottom Line:
If you or someone you know could benefit from assistance with year-end reviews or if you need guidance in viewing your plan through both strategic and tactical lenses, please don’t hesitate to reach out to a financial advisor. It is our responsibility to encourage and support financial literacy for all investors. Think of your financial advisor as a sounding board and guide who helps ensure your financial affairs are in good order as you venture into a new year.
