Financial Reset in the 2nd Half of 2019
The year is flying by. It may be hard to believe, but we’re already halfway through 2019. Did you set financial goals at the beginning of the year? If so, how are those goals looking at the halfway point?
The good news is you have six more months to hit your objectives. Whether your goal was to save more money, pay down debt, or simply organize your financial strategy, you still have time to make it happen before the end of the year.
This also may be a good time to review your retirement plan. Generally, the financial markets have had a good year. The S&P 500 is up more than 13 percent year-to-date. However, that hasn’t come without turbulence. The index lost nearly 5 percent in May.1
If you’re approaching retirement, it’s important to periodically review your retirement strategy to make sure it aligns with your risk tolerance and time horizon. If you suffer a loss, you may not have time before retirement to recover. Below are a few tips to help you reduce the risk exposure in your strategy.
Rebalance your allocation.
It’s possible that your target allocation is perfect for your risk tolerance and time horizon. However, it’s also possible that your actual allocation doesn’t match your target.
Investment portfolios naturally become unbalanced over time. Some assets classes perform better than others. Some increase in value while others decline. This happens all the time with investments and financial markets.
However, as asset classes increase and decrease in value, they also become unaligned with your target allocations. For instance, an asset that was supposed to account for only 5 percent of your allocation, may account for much more if it increases in value. Similarly, an asset that declines in value may account for much less than its target percentage. The result is that you get a portfolio that doesn’t match your desired allocation and may even have more risk than you want.
Fortunately, you can correct this issue by rebalancing your allocation back to the desired target. In fact, it’s good to do this regularly, even on a quarterly basis. Many financial professionals can set up your account to automatically rebalance so you know you’re always aligned with the right strategy.
Shift to more conservative assets.
When was the last time you reviewed your allocation? If it’s been a while, you may need to do more than rebalance. It could be time to change your allocation altogether.
As people get older and approach retirement, they tend to become more conservative. This is because your time horizon has shortened. You have fewer years until you retire and actually need to use your money. A more conservative allocation reduces the odds of a sizable loss. It helps you protect what you have while still potentially growing your assets.
Review your strategy and discuss it with your financial professional. Is it time to move to a more conservative allocation? If so, consult with your financial professional to determine what types of strategies are right for you.
Consider an annuity.
Finally, you may want to consider additional risk protection tools. One possible tool is an annuity. Some annuities, like fixed indexed annuities, offer upside potential without the downside risk that exists in the financial markets.
With a fixed indexed annuity (FIA), you receive interest that is tied to the performance of an external index, like the S&P 500. If the index performs well, you receive a portion of the upside performance as an interest payment. If the index performs poorly and loses value, you don’t receive interest, but you also don’t lose any money.
There are a few things to consider before you purchase an FIA. One is the annuity’s surrender schedule. Annuities generally have defined durations in which you pay a penalty if you surrender your contract or make a sizable withdrawal. These penalties, known as “surrender penalties,” are charged on the distribution amount. There are no surrender penalties after the surrender period ends.
The surrender period can make an annuity an illiquid vehicle. It’s often wise to maintain liquid assets outside of the annuity to help cover any emergency expenses or other unexpected costs that may arise.
An FIA can be an effective tool to minimize risk in your portfolio, but an FIA isn’t right for everyone. It’s important to explore your options. Your financial professional can help you determine if an FIA is right for your strategy.
Ready to reset your strategy for the second half of 2019? Let’s talk about it. Contact us today at MasterPlan Retirement Consultants. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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