by Rob Vogel
Financial Resolutions for the New Year
The time has arrived to make your New Year’s resolutions. Your goal is to improve your financial situation in 2020. That requires you to gain control of your finances so that you can build wealth and prepare for life events. This article highlights what we believe are the key components to starting your 2020 finances off on the right foot.
Make a New Year’s Resolution to Increase Savings
One of the best strategies to ensure that retirement is well funded is to save as much as you can during your working years. Here are some simple changes that you can resolve to do in 2020:
- Maximize the contribution to your employer’s 401(k) plan. If you are over 50, you can contribute $19,500 for the year.
- Add money to your IRA. Even if you are covered by a pension plan at work, you can make a non-deductible contribution of up to $7,000 if you are over 50.
- Commit 50 percent of your year-end bonus to savings. Instead of spending your full bonus, save half and use the other half to “treat yourself” to a well-deserved reward for your hard work.
Get a Proper Risk Assessment
When you’ve built considerable assets, risk management is critical. It may sound basic, but investors frequently get caught taking too much risk based on their financial situation.
We see this routinely in our practice. New clients come in thinking they are well diversified, but when we analyze their accounts, they are often over-weighted in certain sectors or have a concentration in a handful of the big cap stocks. They probably started out with a well-balanced portfolio, but time and gains shifted their positions and they became out of balance. We also find that many advisors never considered the full financial picture when evaluating portfolio allocations.
When considering risk, all aspects of your life and financial picture need to be included. You must account for all financial assets when making risk management decisions, including your primary portfolio, assets held at other firms, businesses owned, real estate, company stock and incentive compensation.
If you and/or your advisor are not looking at the entire portfolio and rebalancing your holdings regularly, then the portfolio can become out of sync with your overall investment objectives and you may be taking on too much unnecessary risk.
As life and work situations change, it’s important to review your risk tolerance and preferences. If you haven’t reviewed your portfolio risk recently, contact us for a complimentary review of your current situation. We’ll make sure your investment objective is set based on your life goals and your ability to tolerate risk. We can also help you rebalance your portfolio to get back to the proper risk zone for you.
It is helpful to review your allocation at least once a year, so what better time than the new year?
Make 2020 the year you get your finances in order. Contact Lucas Capital Management to see how we can help.
Stop Making Emotional Investing Mistakes
According to Dalbar, Inc., an investment research firm, most investors don’t come close to realizing market returns, and instead, badly lag the market.
Emotions cause many investors to make poor decisions. When it comes to investing, our emotions get in the way of prudent decisions. There are two things that often happen:
- When a portfolio has lost value, we become despondent and think, “If this continues, I won’t have enough money to live.” Our emotions tell us to sell and protect what we have.
- After periods of big gains, we think that the party is sure to continue, and we don’t want to miss out on making even more money. This has become such a common phenomenon that it even has an acronym: FOMO (or Fear of Missing Out).
Either selling after losses because of panic or buying after a period of gains on euphoria can detract from long-term performance.
Break this cycle in 2020. Talk with a financial advisor who can offer an unbiased, unemotional point of view. Remember that the stock market rewards long-term investors.
Emotional investing mistakes are extremely common but can be very damaging to your nest egg. Working with an experienced professional who has studied and understands market cycles can help you avoid these common panic-selling behaviors.
Integrate Tax Planning into Your Financial Plan
When you were beginning your career or business, your tax liabilities were probably determined by your annual earnings: Make more money and you pay more income tax. But as you accumulate wealth, your tax situation becomes more complex and can be greatly impacted by your investment decisions.
Taxes are often a family’s single largest expense, yet tax planning is usually far from mind. Unfortunately, this is also an afterthought with many financial advisory firms, unless they are knowledgeable on the topic and are set up to work closely with your accountant.
The IRS provides many tools for investors to defer taxes and in some cases eliminate taxes. But IRAs, both Traditional and Roth, are frequently overlooked avenues for tax planning. Disciplined contributions to retirement accounts year after year can produce impressive results.
Small businesses have a broader array of choices for reducing income taxes. When you work with a financial advisor, he or she should explain your choices and determine the best fit for your situation.
Once a plan is created, your financial advisor should help make sure it is successfully implemented. Tax-efficient strategies are one of the few ways to get more return for no additional risk. For successful people, integrated tax planning should be a priority and not an afterthought.
As you evaluate your tax strategy, it is a great time to think about any charitable giving you are interested in funding currently and in the future.
Work With a Financial Advisor You Trust
Working with a financial advisor that you trust can be a huge benefit. But not all firms are created equally.
Lucas Capital Management is a completely independent Registered Investment Advisory firm. We’re owner-operated and act as your fiduciary at all times, which means we are held to a legal standard to always put your interests first. We are also completely fee-only, meaning we are only paid by our clients through fees, which avoids any conflict of interest. We don’t accept commissions or other indirect compensation.
We have six decades of experience! Many big firms rely on salespeople to push products. But at Lucas Capital Management, we are not salespeople. We are accomplished professionals who act as your consultants and problem-solvers. We’re well-equipped to help business owners and executives work through very complex issues. Our principals have a wide and deep financial experience that gives us a unique perspective on financial strategies, investments and markets.
Take the burden of handling your own finances off your shoulders and discuss your situation with a financial advisor. Making this New Year’s resolution can be a game-changer.