Fisher Investments’ Year-End Financial Checklist

Story Stream
recent articles

If ever there were something to cheer about, we reckon 2020’s end tops the list for most people. In addition to being cause to celebrate, we think it is also a good time to conduct a portfolio checkup—something investors benefit from doing periodically. Here, to help, is Fisher Investments’ handy-dandy, year-end financial to-do list.

Check whether your financial situation has changed.

Even in a normal year, it is common for a person’s financial circumstances to change—a new job, retirement, a new home, marriage, divorce, a kid going off to college, inheritance—all can affect your cash-flow needs or investable assets, which can in turn necessitate changes to your investment strategy. But 2020’s catastrophes raise the likelihood of changes even further. Perhaps you were impacted by permanent or temporary job loss, either for yourself or a family member who needed help. If your home or business was damaged in a hurricane, flood or wildfire, that could also likely affect your personal finances tremendously.

If you have added to or dipped into your investment portfolio this year, you may find you need to make some adjustments to bring the amount of stocks, bonds and other securities you own—aka your asset allocation—in line with your original blueprint. If you find yourself needing to withdraw more cash from your portfolio annually from 2021 onward, this may necessitate a change in asset allocation. The same could be true if you are delaying cash-flow draws to replenish your portfolio after taking a needed withdrawal.

Check whether your investment goals have changed.

In Fisher Investments’ view, personal circumstances and cash-flow needs aren’t the only things investors should consider when determining an optimal asset allocation. Your time horizon (the length of time your money must be working toward your goals), long-term goals and overall comfort with market volatility are key considerations, too. When we talk about goals, we mean the overall purpose for your money, be it to provide for your needs after you retire, leave a legacy for your heirs or a charity, fund a child or grandchild’s college education or something else in that vein. It isn’t unusual for goals to change along your investment journey. For instance, if you decide you want to buy a second home in two years, then the goal for at least some of your assets is different than those you set out with. If you or a family member are diagnosed with a terminal illness, that could also have huge ramifications on your goals. Even changing your philosophy on life could trigger a change, if you go from wanting to leave a legacy to preferring to enjoy the full fruits of your labor and saving before you pass away. We can see scenarios where the stress and trauma of this year affect how you plan to spend your retirement years. All that is relevant to your investment goals.

Check whether your portfolio’s returns are far out of step with the broader market.

More concretely, checking in on your portfolio’s performance periodically is always wise. Not because you should always be making changes to chase returns but, rather, because if your performance is wildly different from the broader market, it could be a sign you are taking too much risk. Note, that holds even if you do much, much better than a broad index like the S&P 500 or, if you are invested globally (which we think is most beneficial), the MSCI World Index. If you beat one of these indexes by a wide margin, it probably means you aren’t sufficiently diversified. Which brings us to…

Check whether your exposure to individual companies, sectors or geographic regions is too high.

In addition to being a measuring stick for your performance, a broad index like the MSCI World Index is a good blueprint against which to assess your portfolio’s construction. At MSCI’s website, you can find factsheets that show the Index’s sector composition, which you can use to measure your own sector and country concentrations to see if you are taking excess risk. For example, the MSCI World Index factsheet dated November 30, 2020 puts Information Technology at 21.6% of the Index’s market capitalization.[i] Therefore, if half of your portfolio is in Tech, that is probably too much. Even if you expect Tech to continue doing extremely well, it is important to be diversified in case your expectations prove incorrect.

The same applies to individual companies. Unless you are dealing with the biggest companies in the Index, we think it is best to limit your exposure to any one company to around 5% of your total portfolio value at most. That reduces the risk that unforeseen troubles at a single company—think Enron—can cause huge problems for you financially. When you are checking this, don’t forget to look in your 401(k), if applicable, as in Fisher Investments’ experience, this is where many investors load up on their own company’s stock. While that might seem logical—since many reason that their employment means they know their own company inside and out—it doubles the influence that company has on your financial situation (salary plus retirement investments). Diversification is a key insurance policy, in our view.

These considerations can form the foundation of a quality year-end portfolio checkup—a step we think can help you enjoy a happier, brighter and financially healthier 2021.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return.  This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

[i] Source: MSCI, as of 12/10/2020.