Mid-Year Financial Check Up: How Are Your Investments?
In the northern hemisphere, the summer solstice happens when Earth’s north pole is at its maximum tilt towards the Sun. On this magical day of the year, Earth receives the longest stretch of daylight.
In many cultures, the solstice is an important time of year and celebrated with festivals, ceremonies, and traditions. For some, the summer solstice is a time to reflect on renewal and rebirth.
Whether or not you celebrate the summer solstice, the day’s proximity to the year’s halfway point makes it an excellent time to reflect on your own progress. It is a wonderful time to look both forward and backward.
The year’s halfway point is also a lovely time to do a check-in on your life and goals. If a personal inventory is something that you plan on doing, don’t forget to integrate a financial checkup into your time of reflection.
Though plenty of folks do a financial checkup at the beginning of the year, that may not be enough. A healthy financial life is not one where you set it up once, never to tend to it again. Just like going to a doctor once does not make you physically healthy. Routine financial checkups are an essential part of overall financial health.
Have you checked on your savings plan? What about your investments? With the spirit of the summer solstice as your guide, here are some ideas for how to do a financial checkup halfway through the year.
Savings Check Up
Use the summer solstice as motivation to check in your savings goals. Here are a few questions to consider:
1. Am I on track to meet my savings goals?
If you set a savings goal at the beginning of the year, now is a good time to determine whether you’re on track. For example, if your goal was to save $5,000 in an emergency fund, you’ll want at least half of that saved by the year’s halfway point. If you’re behind on your goals, strategize ways to get back on track.
For some, that may mean looking at spending for the first half of the year, looking for ways to cut back. Others may want to consider ways to boost income. Either way, it’s the season for refreshing your savings plan.
2. Are my savings automated?
To step up your savings game, you may want to consider automating contributions to savings accounts. You may already have 401(k) or other retirement contributions that already deducted from your paycheck, but what about automatic withdrawals to fund other savings goals, like an emergency fund, or saving for a car or travel?
And if you don’t have a retirement account set up with an automatic deduction, consider doing this too! Saving is easiest when it requires as little brain power from us as possible.
You may even want to consider opening up savings accounts that are separate from your checking account. Not only are there accounts where you can earn interest on your cash but keeping the money separate stops you from spending it, and can be inspiring as you watch the account grow.
Investing Check Up
Here are a few questions to ask yourself as you’re looking at your investments.
1. How are my accounts allocated?
Asset allocation refers to the mix of cash, stocks, bonds, and other asset classes in your investment portfolio. Generally speaking, it is best to have this mix represent your goals and risk tolerance for this particular pool of money.
For example, you may feel comfortable taking more risk and targeting growth with retirement money since you won’t need the money for a long time, and therefore keep a higher percentage in stocks.
Reassess your goals, risk tolerance, and time frame for each pool of money. Is your current asset allocation appropriate, or is there a mix of investment types that would work better for you? For example, if you are approaching retirement, you may want to move into an allocation that is more conservative.
If the thought of determining your own asset allocation is overwhelming to you, you may want to consider having some help. Automated investing services determine an investor’s appropriate mix of investments given their goals and invests accordingly. It’s great for those that want a hands-off approach.
2. What fees am I paying?
Investing can be a great way to build wealth over time, but what many investors may not realize is just how erosive the costs of investing can be on their overall returns. Within your investment accounts, you could be paying maintenance fees, advisory fees, and trading commissions, to name a few. Do you know what fees you’re paying?
While you can’t control what the market will do, you can limit how much you pay in fees. And currently, it is possible to find banks and financial services companies that charge little to no fees to invest. Both SoFi Active Investing and SoFi Auto Investing offer the opportunity to invest with no additional SoFi fees.
3. Who are the beneficiaries on your accounts?
Many investment accounts—like retirement accounts—allow you to designate a beneficiary (or beneficiaries) for that money. A beneficiary is a person that the money is passed along to in the event something happens to you.
If you haven’t put beneficiaries on your account already, it may be a good idea to establish one (or more). If you already have beneficiaries, do they need updating? Also, consider adding a contingent beneficiary, which is the person who will receive the money in the event the primary beneficiary predeceases you.
4. Are your investments diversified?
“Don’t put all your eggs in one basket” is the idea behind investment diversification. Diversification might help to mitigate some risk in your portfolio, although it will never completely eliminate it.
Diversification applies to all levels of investing, starting with the big picture decision of choosing what asset classes to invest in, down to smaller decisions, like which company stocks to own. Similarly, you might want to consider whether your investment portfolio is too concentrated in any one country, industry, or stock.
5. What is the tax status of your investment account(s)?
When it comes to investing money, there are three types of accounts you can utilize from a tax standpoint. The first is tax-deferred, which means you do not pay income taxes on the money saved now, but you do pay them later, when you withdraw the money in retirement. 401(k) accounts and Traditional IRAs might be tax-deferred.
The second is a Roth IRA or Roth 401(k), where you do pay income taxes now but do not pay income taxes later. Within both tax-deferred and Roth retirement account types, you do not pay capital gains tax.
Last are taxable accounts, which have no special tax treatment, and are sometimes used to buy and sell investments for shorter term purposes than retirement. Also, some people use taxable accounts to invest once they “max out” the amount of money they are able to contribute to a retirement account.
Everyone’s tax situation is going to be different, so check with a certified tax professional to make sure you’re investing within the account that makes the most sense for you. That said, some people may want to diversify their tax strategy in addition to their investments, investing money in a combination of account types.
If all of this leaves you with more questions than answers, it may be time to speak with a financial planner. Not only can SoFi’s financial planners answer your money questions, but they can perform holistic financial checkups that touch upon multiple aspects of your finances. It could be the perfect supplement to your summer solstice review.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.