It can be hard to keep track of all the various financial tasks you need to do during a given year. Today I thought I would share a simple list so you can map it out on whatever calendar application you like to use. Here are some of the key financial tasks that should be done at least once per year.
Setting your investments on an automatic contribution schedule is awesome. Ignoring your portfolio until retirement is dumb.
At least once a year you should be taking a look at your portfolio and rebalancing your asset allocation. That sounds like a complicated concept, but really all it means is to make sure you have the right percentage of money in each investment category according to your financial plan.
For example, if you want 70% of your money in US stocks and 30% in a total bond market mutual fund, checking your allocation will show how far off you are. If you find yourself at 75% stocks and 25% bonds you would then rebalance your portfolio by selling off some of the stock mutual funds (5% of your total portfolio) and reinvesting that money into the bond investment.
Why is rebalancing so important?
It’s really simple: it forces you to sell high and buy low. It is easy to “let things ride” when stocks have had a great run, but regularly selling the areas of your portfolio that have grown and buying the areas that have shrunk will save you a lot of headache in the future.
Another perk of rebalancing your portfolio on an annual basis is you can get a tax break. Harvesting your tax losses is where you sell an investment that is worth less than what you paid for it. You can use the resulting difference to either offset capital gains from investments that you sold that made a profit for you or use up to $3,000 of the loss to offset your income tax owed to the government (you can roll any extra loss above $3,000 to the following years until it is used up).
Another benefit to harvesting tax losses: you don’t have to completely leave your investment forever. Let’s say you invested $10,000 in an S&P 500 index fund right at the market’s peak in October 2007. You could sell the investment when the market bottomed out in March 2009, lose more than 50% of your investment, be able to take that loss against your income that tax year, and re-purchase the shares 31 days later (there are very specific rules the IRS has in place to where you can’t repurchase the same or very similar share for a month after you sell).
My very first article in the series included the tip of finding cheaper insurance rates. Just because you got lower rates this year doesn’t mean that rate will be the lowest next year. Regularly shopping around for 15 minutes can result in significant saving of money over the coming years. Put this on your calendar.
When you are shopping around your insurance coverages, consider doing the same for your banking products. Think you’re getting the best interest rate? Check around. Think you’ve got the best rewards on your credit card? A competing firm may have just launched an even better deal.
In addition to the 4 key activities above, here are several additional things you can do to further optimize your finances.
Let me know what you think: have I missed any major annual financial events?