Year-End Review: Evaluate Your Investments in 15 Minutes

How hard did your money work for you in 2019?

To find out, do a 15-minute checkup on your investments — and make plans for 2020. Don’t worry: It’s not hard to do. Just follow these three simple steps.

Step 1: Check your performance

Pull out recent statements for all your investments, including retirement plans such as IRAs and 401(k)s. Or, check them online. If you don’t have a recent paper statement or online access to your accounts, wait until the year-end statement arrives in the mail.

When looking at the statement, focus on fund performance. Once you find those numbers, ask yourself: “Is that good?”

To find an answer, compare your funds with indexes that include similar investments.

For example, if your funds are invested in large-company stocks, you might compare your performance with the S&P 500. If you have a small-cap fund, look to the Russell 2000 for guidance. For more tech-heavy investments, the Nasdaq might be the best comparison.

You need to have an apples-to-apples comparison. That means comparing bond funds with bond funds, balanced funds with balanced funds and so on.

In addition to indexes, you can also see how your funds performed by comparing them with funds offered by such well-established fund companies as Vanguard, American Funds or Fidelity.

Step 2: Review the fees

Look at what you paid in fees. If you’re investing in mutual funds, check out the part of your statement that lists each fund’s “expense ratio.”

Obviously, lower fees are better. Some mutual funds have expense ratios as low as 0.1%, or even lower. Others might have combined fees of well over 1%.

With so many excellent, low-cost investment choices available today, there is little reason to have a fund with more than a 1% expense ratio.

Step 3: Rebalance your assets

The final step is to rebalance your portfolio. Over time — as certain funds underperform or outperform — your asset allocation may become skewed. If a couple of your investments did especially well, you might be weighted too heavily in a specific area.

Why is that a problem?

Because you never know when the bottom could fall out of a particular fund. It’s tempting to jump on a wave and put all your money in a category that is seeing tremendous growth. But if you do so, you risk losing big if those funds hit a bump.

Ideally, you should have a balance of stocks, bonds and other investments that are based upon your individual goals. If you are 22 years old and saving for retirement, you can probably be stock-heavy, since you have time to weather the market’s ups and downs.

But if you’re 60, you’ll want more of your money in bonds and money market funds so you don’t risk wiping out your life savings as you approach retirement.

When you opened your investment account, you may have gotten guidance on the right asset allocation for your situation. Now is the time to rebalance your investments so they reflect that advice.

If you didn’t get guidance, read stories at Money Talks News such as:

Bottom line? Make an investment review part of your year-end planning. Set 15 minutes aside and follow these three easy steps. You’ll feel a lot more confident that your money is ready to meet the new year.

Do you have a year-end system for ensuring your finances are in order? Share with us in comments below or on our Facebook page.

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