The past 12 months have been such a wild ride with so many changes happening in a short amount of time. 

In this post, I’m going to share two things that you can do to prepare in the new year, so that you feel good about your retirement plan and your investment plan. 

The first thing to do in the new year is review your asset allocation. 

Since there were so many extreme swings last year in the markets, and maybe also your portfolio, it may make sense to sit down and review how your money is allocated. Pay attention to the mix between stocks and bonds and any other asset categories that you might own. It’s important to do this because if you don’t, you run the risk of becoming more and more aggressive. And the older that you get, that might be exactly the opposite of what you want to be doing.

As an example, if you’re invested in both stocks and bonds, over time the stock portion might go up and take over more of your total fund. If you do nothing from year to year and don’t review the allocation and see what your money is doing, then you run the risk of the stock portion taking up a bigger and bigger piece of the pie each year. 

If you’re projecting your income based on investment balances, then you could wind up in hot water if there’s a big correction or something that was just unexpected. The value of your portfolio can move in a pretty drastic way.

Something we’ll do for our clients who are in retirement and value predictability is to regularly rebalance the portfolio when things drift. 

And as an example, some years stocks do go up and take a bigger piece of the pie. Then we might sell some stocks to balance out the portfolio and get back to that original balance. And stocks go down some years and they end up taking a smaller portion of the pie. At that point, it’s time to sell some bonds and buy some stocks to get back to that original 60/40 mix. 

The second thing to do this year is make sure you have enough money in your emergency fund.

Looking back at 2020, we saw that those who had a healthy amount of cash or conservative investments were able to weather the storm much easier than those who did not have emergency funds set aside. The right amount to keep in your emergency fund is going to vary depending on your personal preferences. A common amount that you’ll see is to have between three to six months of expenses set aside. But if you’re in retirement or getting close, then you might want to have more in the conservative bucket. To get an idea of the amounts to have in conservative funds, click here to check out the three-bucket withdrawal strategy.

This year has been a challenging one for sure. Nobody really knows what’s going to happen in the next year, but these two investing moves can help you get on track for a brighter financial future.