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3 Reasons to Do a Mid-Year Investment Review

May 8, 2018
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Financial checkups can be an effective way to measure progress toward your goals. They can show you what’s working well and uncover issues you may need to address. Many "buy and hold" investors generally review their investments once a year. However, it’s also important to consider doing a mid-year financial checkup. A variety of things can happen in six months that might impact your portfolio, including market developments, new tax laws, and significant life events such as the birth of a child or marriage. 

Depending on your investing style, you may choose to do the review yourself or you may want to work with a TD Ameritrade Financial Consultant who can walk you through the process and help you assess your investments.

Whether you go it alone or work with a pro, here's how a mid-year financial review could help you manage your portfolio, 

1. Assess Impact of Market and Economic Events 

The first few months of 2018 have felt like a roller coaster ride with big market swings in both directions, often in the same week. Although volatility is a “normal” part of investing, if left unchecked, your portfolio may become more aggressive or conservative than you originally intended. For example, a portfolio that was 60% stocks and 40% bonds at the start of the year could potentially now be 50%/50%. The Federal Reserve has also raised interest rates during the first half of 2018, and there’s the possibility of more hikes before year end. Interest rate changes affect the performance of stocks and bonds, which in turn could impact the value of your investments. 

A mid-year financial checkup could help you determine if your asset allocation still reflects your risk tolerance, and if your portfolio is positioned for a rising-rate environment. It might also reveal if you’re potentially over-weighted in a particular asset class or sector given the current market conditions. 

Based on your findings, you might consider:

  • Rebalancing you portfolio so it reflects your target allocation
  • Incorporating investment strategies to help weather higher interest rates
  • Trimming your position in a sector or asset class
  • Setting up alerts to help monitor specific securities (TD Ameritrade clients can log in to their accounts to create the alerts.)

If you don't enjoy following the markets, you may also want to consider a managed portfolio solution, offered by TD Ameritrade Investment Management, LLC, where financial professionals monitor your portfolio on your behalf and rebalance it as necessary.  

2. Identify Tax and Investment Opportunities

The tax reform bill signed into law last December contains significant changes, many of which take effect this year. Familiarizing yourself with the new rules now gives you time to update your tax and investment strategies before year end. Keep in mind you may want to contact a tax professional to discuss your personal situation. 

  • Tax brackets and rates. Although the tax rates have decreased, the income thresholds for each bracket were also adjusted so your tax bill may potentially go up or down. Either way, your new rate may influence your investment decisions. If you expect to have more money in your pocket, you might want to use the extra cash to build your emergency savings fund, pay down debt, or put it toward another goal like retirement. On the other hand, if you expect to pay more, you might decide to contribute to a traditional IRA instead of a Roth. You may be able to deduct the contributions and potentially lower your current tax bill.  
  • Standard and itemized deductions. The standard deduction for couples filing jointly has nearly doubled to $24,000 ($12,000 for individuals). There are also lower limits for state and local income tax deductions and mortgage interest deductibility. Given this, it may no longer make sense to itemize your deductions. Calculating the charitable donations you’ve made so far in 2018 as well as any deductible expenses you’ve incurred may help you see where you stand relative to the $24,000 threshold. You can then decide if you want to take any steps to potentially boost your itemized deductions before December 31.
  • 529 College Savings Plans. It may still be referred to as a college savings plan, but 529s are no longer just for college. Under the new tax law, you may be able to take out up to $10,000 a year tax-free from a 529 plan to cover K-12 tuition expenses for private and religious schools. This may be something to consider depending on the educational needs of your loved ones.

3. Adjust Your Financial Plan to Reflect Life Events

Have you experienced a significant event like marriage, birth of a child, death of a loved one, or new job within the last six months? If so, it’s important to make sure your financial plan aligns with your new situation. A mid-year financial checkup can help you determine the types of changes you might need to make, such as:

  • Reprioritizing your savings goals
  • Reallocating your investments among different asset classes
  • Purchasing life insurance
  • Starting a college fund
  • Updating your will and beneficiary information

Life can get pretty hectic and cause your portfolio to fade into the background. But it’s important to pencil in time to review your investments. It’s really the only way to know if you’re making progress toward your goals and to identify potential opportunities to help boost your savings. If you’re a TD Ameritrade client, consider kicking off your review by logging in and checking your account. You may also want to consider scheduling a goal planning session with a TD Ameritrade Financial Consultant who can help you evaluate your existing financial plan or work with you to create one that's tailored to your needs. 

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