December is a great time to review your current financial situation, make some New Year’s resolutions, and start 2014 on the right foot. If you have a financial advisor, schedule a year-end check-up with him or her, gather your most recent financial statements, and bring them to your meeting. Once you’re sitting in front of your advisor, ask him or her these four questions. 1. Should I make any changes to my portfolio? Financial advisors talk a lot about asset allocation. That’s the process of spreading your money across different types of investments — stocks, bonds, cash,…
December is a great time to review your current financial situation, make some New Year’s resolutions, and start 2014 on the right foot. If you have a financial advisor, schedule a year-end check-up with him or her, gather your most recent financial statements, and bring them to your meeting.
Once you’re sitting in front of your advisor, ask him or her these four questions.
1. Should I make any changes to my portfolio?
Financial advisors talk a lot about asset allocation. That’s the process of spreading your money across different types of investments — stocks, bonds, cash, etc. — to keep your eggs spread across a number of baskets.
According to studies like those conducted by American mutual fund giant Vanguard, more than 100% of a portfolio’s long-term performance can be determined by its asset allocation policy.
Because asset allocation is so critical, ask your advisor if you should: 1) Rebalance your target mix of stocks, bonds, and/or cash, based on your long-term financial goals and risk tolerance; 2) Improve the diversification of your investments; and/or 3) Upgrade the quality of your investments.
2. How did my portfolio perform in 2013?
If your financial advisor manages money for you, ask him how you did. Did you make money? What investments performed the best and the worst?
Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), has generated a year-to-date return of minus 3.1%. If you are invested in actively-managed unit trusts (where fund managers pick and choose the shares they want to invest in) that invests predominantly in local shares, how did they do for the year compared to the benchmark? More importantly, how have those investments performed in the long-term against the index?
Most fund managers have a very tough time beating a broad market index over the long-run; don’t pay for active management through high fees, which can really hurt your returns, if you’re not getting commensurate results.
Like how Motley Fool Singapore’s Chong Ser Jing has written before, “Why pay big fees to professionals [referring to fund managers] who have poor odds of beating the market when an investor can turn to index trackers like the SPDR Straits Times Index ETF (SGX: ES3) or the Nikko AM Singapore STI ETF (SGX: G3B) to mimic the returns of the Straits Times Index?”
Most importantly, ask your advisor if you’re on track to meet your long-term goals based on your portfolio’s performance.
3. How much is my portfolio costing me?
You may like your financial advisor. You may think she’s a great gal and a spiffy dresser. But how much is she costing you? Fees should be transparent, but not every advisor does a good job of explaining fees clearly and concisely. Also, small improvements in fees can translate into big dollars in your accounts.
Your advisor should be able to give you hard dollar amounts for what she’s costing you in terms of commissions, asset management fees, hourly fees, or however you pay her. Your advisor works for you. Her ongoing advice and services should justify the amount you shell out to keep her in your employment.
4. What can I do to make 2014 a great investing year?
A new year can be like a clean slate. Don’t beat yourself up over what you didn’t do in 2013. Focus instead on what you will do in 2014 to make it your best investing year yet. Take note of what your advisor recommends — be it beefing up your savings account, getting adequate insurance coverage, or drafting a will.
Commit to making 2014 a great year. By asking your advisor these questions and acting on his or her responses, you’ll set yourself up nicely for a very prosperous New Year.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. This article was written by Nicole Seghetti and first published on fool.com. It has been edited for fool.sg