Investing in the New Year (and Making Your Financial Resolutions)

by Heather Hagen, Portfolio Manager

The past year has seen all-time highs in the US stock market, leading some investors to wonder whether now’s the time to cash out. It is human nature to believe that future results are influenced by recent past results and accordingly must revert to their natural balance. If you flipped a coin and it came up heads 10 times in a row, then you would likely assume that, surely, the next flip would result in tails. But just as with flipping a coin, past results of the market have no bearing on future returns, and recent gains do not necessarily indicate an inevitable pullback.

On the other hand, many “experts” are claiming that the 32.4 percent return of the S&P 500 in 2013 will indicate strong market returns for 2014. As Sam Stovall, chief equity strategist for S&P Capital IQ, asserts, “Good years tend to follow great years.” But truly, no economist, investment manager, or mathematical system can accurately predict the direction of short-term market movements. Instead, investors should take this time as an opportunity to rebalance their portfolios according to the asset allocation targets set forth in their investment policy statements. Rebalancing can be a way to invest against the direction of the herd by removing emotion from the decision process—essentially forcing you to buy low and sell high. It also helps align your investment portfolio with the strategy developed in your personal financial plan rather than a gut reaction to media headlines.

Conflicting market forecasts can leave investors feeling paralyzed, wanting to wait until the global economic recovery and direction of market movements are more certain. We would caution against this inclination to wait on the sidelines. Uncertainty is a constant and inherent factor in the markets, and there will always be issues with the economy or government to make investors skittish. As we’ve seen not just over the past year but through market cycles, those who decide to wait things out to better time the markets often pay for their hesitation. A better course of action is to stay invested, stay diversified, and coordinate your investment portfolio with your personal financial plan.

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Financial New Year's Resolutions

When you make your New Year’s resolutions for 2014, consider adding a few financial tasks that you may have been putting off or that somehow keep slipping to the bottom of your to-do list. Perhaps you’ve been meaning to call about reducing your credit card interest rate, or maybe you haven’t yet designated a beneficiary on your retirement plan. The New Year can be a great time to start fresh and get motivated to check these items off your list. Consider the following items for your financial New Year’s resolutions.

Create or Update Your Personal Budget

This is a task most of us are guilty of putting off, but creating a budget to track your expenses and plan your cash flow doesn’t have to be painful. Many people are surprised at how making small changes in spending and saving habits can make a big difference. Your Moss Adams Wealth Advisor can provide a personal budget template to get you started.

Revisit Estate Planning Documents

Perhaps it’s been a while since you’ve updated your will or living trust, or maybe you haven’t created one yet. Health care directives and durable power of attorney documents are also very important tools in any estate plan. Depending on your personal situation, the use of trusts may be appropriate. The New Year may be a good time to make an appointment to discuss these documents with your attorney.

Review Insurance Coverage

When most of us receive our life insurance policies, we often put them into a drawer and never think about them again. But it’s important to revisit these policies periodically to determine whether the amount of coverage is still appropriate and whether the policy is performing as promised. While you’re at it, it’s a good idea to assess your needs for disability, long-term care, and umbrella insurance too.

Consider Tax-Saving Techniques

There are many strategies with the potential to reduce your tax burden. For example, you may want to consider taking advantage of an employer’s retirement plan, making municipal bond investments, or confirming you’re using the appropriate cost basis method in your investment accounts. As always, consult with your accountant for professional tax advice.

Create or Update Your Personal Financial Plan

Create a financial plan that addresses all of the above items and others. If you already have a plan in place, it may be time to update it—especially if you’ve had any recent major life changes, such as a marriage, the birth of a child, or a recent or approaching retirement.

Obtain a Copy of Your Free Annual Credit Report

The holiday season may be behind us, but an increased risk of credit card fraud and identity theft is not. Take advantage of your free credit report, available at, to monitor your accounts and make sure your information is safe.

Review New Health Care Reform Requirements

Beginning January 1, all nonexempt US citizens and legal residents are required to have qualifying health care coverage or face a penalty when filing their 2014 tax returns. Penalty payments are the greater of 1 percent of household income or $95. Add another half that amount for dependents under age 18, up to a maximum family penalty of three times the adult penalty. If you’re under age 65 and aren’t covered by an employer plan, it’s important to note that the deadline for open enrollment in state health insurance marketplaces is March 31. Also beginning January 1, insurers will be required to issue or renew all applicants’ coverage—regardless of health status—with no annual limit on coverage and with limitations on the variance in premiums among individuals.

We're Here to Help

Contact your Moss Adams Wealth Advisor to learn more about making and following through on your financial New Year’s resolutions.

Heather Hagen crafts and implements custom fixed income strategies for both individuals and corporate clients, taking into account their specific income and liquidity needs.

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