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Update Your Financial Accounts and Investment Portfolio in 2020
The global health crisis has dramatically changed the way we live, work, study, vacation and so much more. The lockdowns that began in March remain for many in some form, with summer plans and holiday celebrations taking dramatically muted tones. This year certainly has not unfolded the way most expected, but it has provided a unique opportunity for getting on top of your investments and financial accounts.
Update your financial accounts. Take additional “spring cleaning” time to pull out estate documents – your will, living trust, health care directives, power of attorney – and review them for accuracy and any necessary updates. Have beneficiaries changed? Are the charitable organizations listed still relevant and important? Are health care directives in place for adult-age children?
While updating and reviewing estate instruments, don’t forget the critical next step of confirming the appropriate titling of financial accounts and beneficiary designations. This is key to ensure that accounts are titled correctly for specific goals. For example, all too often families get a living trust drafted only to forget to change the title on accounts and assets to put them into the trust. This omission can leave assets unprotected from creditors and exposed to probate, which is both costly and time consuming.
Check on assets. The dramatic moves in the financial markets have challenged the nerves of many. Times of extreme volatility make for an appropriate time to review overall asset allocation in your portfolio to see if market gyrations have moved a plan off course. Rebalancing to ensure that holdings still align with plan targets and objectives is essential to ensure risks remain controlled.
Further, times of market volatility and economic strain can change the underlying profile of many holdings within portfolios, so it’s important to use these occasions to “look under the hood” and ensure that the investments made before the crisis are still the most appropriate ones to own during and after.
For example, some sectors, such as airlines and hotels, may have come under economic pressures or risks that may challenge or severely slow their recovery. Debt-heavy companies may find their shares severely pressured when business slows, so an investor needs to know where risks might be hiding.
Understand interest rates. Leveraged investments, like many exchange traded funds that borrow money to enhance returns, may perform relatively well during times of falling interest rates but conversely could see their net asset values drop precipitously when rates eventually rise. It is important to know what you own and upgrade the quality of your portfolio, as necessary, to ensure each of the investments is still appropriate. Fine-tuning a portfolio with your current financial goals in mind help you weather market volatility and better position you for the eventual rebound.
Similarly, interest rates paid on savings may have increased or decreased meaningfully, so researching to make sure your cash and bond accounts are maximizing available opportunities are critically important for optimizing returns. With the Federal Reserve remaining dovish, interest rates are expected to remain low for some time, so it’s imperative to do your research on returns.
For many, the global health crisis has brought on additional financial stress and worry.
While no one can predict when our lives will return to “normal,” we can all take advantage of this stay-at-home time to tackle some of the important financial projects that so often get postponed. As businesses use this pause to rethink their strategy to position for better growth and profitability, individuals and families can do the same to ensure that post-pandemic, they too are in a stronger position.
