As the year comes to an end and a new year approaches, many of us will start contemplating and reflecting on how these 12 months have passed.
Aside from planning for holidays, you might also want to do a yearly check up on your financial plans and see where you are before closing the year off.
Whether by yourself or with a financial adviser, the key thing is to look at how your investments have performed over the last year and determine if any area needs adjustments.
But how do you even start? And what are the questions you need to ask yourself or your adviser? Here are some useful tips to help:
Review your financial goals
As we go through different life phases, our financial needs and goals will change. Those that are single with zero commitments will have different priorities when it comes to spending when compared to those with children or elderly parents.
"As we go through different life phases, our financial needs and goals will change."
If the past year saw a major event in your life like marriage or the birth of a child, you’ll need to adjust your short-term and long-term goals. For example, you might want to put off buying that new gadget and start a savings account for your newborn. Also remember to establish a budget when identifying new goals.
Rebalance your portfolio
As time goes by, the value of the asset classes in your portfolio might change. For example, certain stocks might be doing well this year and this will increase the value of stocks in your portfolio. But this also means that it will increase its proportion and the risk level of your portfolio. You can rebalance your portfolio again by selling off or investing more in a different asset class so that the percentage of each asset class matches your ideal allocation again.
Changing course (only if necessary)
Sometimes rebalancing might not be enough to address an underperforming investment and it might require something more drastic like changing course to match the current market condition. This means you’ll have to review your investments to make some adjustments. Also, if you can no longer actively manage your investments because you’ve become more busy in your day-to-day job, consider adopting a more passive investment style and go heavier on mutual funds or dividend stocks. But only consider if this is necessary and if you are not confident, you may want to consult a financial adviser.
Diversify your portfolio
Diversifying your stock portfolio is important because it keeps any part of your investment from being too dependent on only one type of asset class. There are many ways to diversify your portfolio – you can spread out your investment tools from stocks to mutual funds to robo advisors and even cryptocurrency. And even within those pillars, you can further diversify into different themes like tech, health or so on. This ensures that you are not "putting all your eggs in one basket," and creating unwanted risk to your money.
Review your cost and charges
Before you head into the new year, you should calculate your returns after deducting your investment costs to see the net return. Find out all your investment expenses like management fees, expense ratio, sales charges, and others. While some are set in stone, others can be reviewed and changed depending on how your goals have changed. It might be worthwhile to shop around as well and inquire about other banks and investment platforms who might offer similar services but for a lower fee. Every dollar saved is a dollar made.
Review your insurance
As the year comes to an end, take this opportunity to speak to your AIA Life Planner and review your insurance plans to ensure that you’re getting the right amount of coverage. As mentioned previously, your goals might have changed and you might need to insure a new house now or want to get a new car or even start a family, so it is important that your insurance coverage reflects that.
You can also give your finances a quick health check before you make your decision by heading over to the My AIA app or the Financial Health Check portal.
“As the year comes to an end, take this opportunity to speak to your AIA Life Planner and review your insurance plans to ensure that you’re getting the right amount of coverage.”
You only have a few more weeks to think about your taxes and how to make the most of the deductions before it's time to file them in a couple of months. Maybe it's time to buy that electronic device that you can deduct for your taxes? It’s the holiday season so perhaps a vacation is something you can consider since it is also tax deductible. The government has unveiled a slew of tax reliefs for all Malaysians whether you are single, married or with children. Check it out here.
Although your estate plan isn’t an investment, it determines what happens to your investments if something unfortunate happens to you. A lack of estate planning won’t just derail your legacy but also cause undue frustrations for your loved ones. So, before the year ends, you’ll want to check if all your assets are included in your estate plan, especially the ones you recently acquired. If you have properties, you might want to get them appraised if you’ve not done so for a while. Another thing to consider is if your will and beneficiaries still align with your wishes should something happen to you.
Having a financial plan is an important step in making sure you have a path to reach your goals. By doing a yearly review, you keep track of that path. Due to the pandemic, often the financial goals may change, and this is the perfect time to realign your investment portfolio accordingly. So, what are you waiting for? Start making that list and review your financials!