Posted: January 14, 2009
Five financial resolutions for 2009
Assess your financial healthJohn Lester
As 2009 begins, you may be examining certain areas of your life and resolving to make improvements. And, after a difficult year for the economy, you may be wondering what you can do to financially prepare for the new year and beyond. Here are five financial resolutions to consider as 2009 gets underway.
Create your financial plan
Clients who have a financial plan are not only 50 percent more comfortable with their financial situation, but also have a clearer sense of the direction they need to take, according to a report by Ameriprise Financial’s “Value of Financial Planning Study.”
A financial plan helps you coordinate all the financial elements of your life with your lifelong goals. This step can also help you put the next four resolutions into context.
Every portfolio should be diversified, with an appropriate level of risk exposure for your personal situation. That level will depend on a number of things including age, income, assets and goals. Given the significant market downturn of 2008, your risk tolerance might be very different now than it was a year ago.
One step to take is to examine your portfolio to see where you have concentrated positions in equities and evaluate the risks that come from lack of diversification. Decide whether or not you want to increase or reduce equity investments or if you want to allocate more money to traditionally less risky investments like CDs or money market funds. (Note that CDs may be FDIC insured whereas money market mutual funds are not FDIC insured, may lose value and, although rare, the NAV could dip below $1.00 a share. Not all investments are suitable for all investors. For a full discussion of the risks associated with a particular investment, please contact your financial advisor.)
Reevaluate investment strategies
With most stock prices significantly lower than they were a year ago, investors with an aggressive risk profile and a longer horizon may want to increase their allocation to equities. On the other hand, those who now have a lower tolerance may want to consider an investment with less exposure to risk or market volatility. Work with your financial advisor to devise a strategy that’s right for you.
Lower your taxable income
It’s important that your investments are in the most tax-efficient accounts available to you. Check now to make sure that is the case. Find out if you’ll have any “phantom income” where you may not see cash flow, but you will have a tax liability.
Ask your tax advisor if you may be subject to the Alternative Minimum Tax. Finally, be sure you fully funded your tax-deferred retirement plan. This will be pivotal in your future finances, while saving on taxes now.
Be consistent and patient
In addition to being defensive and diversified, a good portfolio is free of emotion. Take time to go through your financial plan and take an unbiased view.
John Lester is the Colorado market area manager for UBS Wealth Management. This article has been written and provided by UBS Financial Services Inc. As a firm providing wealth management services to clients in the U.S., we offer both investment advisory programs and brokerage services. Advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate contracts. For more information, please visit our website at www.ubs.com/workingwithus.