Time for a Mid-Year Financial Review

What to focus on

Roger Wohlner

With the second quarter almost in the books, 2012 is starting out to be no less of a roller coaster ride for investors than was 2011. In fact, the pattern of 2011 seems to be repeating itself. A strong first quarter was followed by a weak second quarter. Time will tell if the third quarter sees double-digit percentage losses among the major equity indexes, as in the third quarter of 2011, followed by double-digit gains in the fourth quarter.  

At the risk of sounding like a financial planner, early July would be a great time to take stock of not only your investments, but also where you are in terms of your financial plan and your financial goals. Some things to consider in your mid-year review:

  • Investment allocations. Hopefully, you have a target investment allocation that is tied to your financial plan, your goals, and your tolerance for investment risk. If your portfolio is out of balance vs. the target parameters, it is generally a good idea to do some rebalancing back to the target percentages. I view rebalancing as a tool to control risk.
  • How are you tracking against your financial goals? Is your savings rate on track? Has the performance of your investments helped or hurt your progress?
  • How do your individual holdings (mutual funds, ETFs, stocks, etc.) stack up against their peers? Would you still make these investments today?
  • Has your life situation changed? If so, what impact does this have on you financially?  Did you get married, divorced, have a child, lose your job, get promoted, etc.?
  • Man budgeting with financial documents and calculator

    Most importantly, focus on the things that you can control. Market and economic volatility seem to be ongoing facts of life. This is totally out of your control. I’m often asked where I think the economy is headed, how the election might impact things, and other related questions. In the course of a discussion, I might express my opinions, but in a financial planning context, I would say none of this really matters. Either Obama or Romney will win the election. If Europe ceases to be the problem, some other region of the world will likely take its place. In short, ever since I can remember, there has been something dire impacting the world economy and the markets.

    All you can do is to worry about what you can control:

    • How much you are saving and investing.
    • How your investments are allocated/the level of risk you are assuming.
    • How you are tracking against your financial plan.
    • The rest of it is just noise.  Remember this as you do your mid-year financial review.

      Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides advice to individual clients, retirement plan sponsors, foundations, and endowments. Read more about Roger here.