Six Financial Best Practices for 2020

What a year it’s been. Remember December 2018? As The New York Times reported at the time, “Stocks plunged in December [2018], posting their worst monthly loss since the financial crisis and the worst December since 1931 and the Great Depression.”

It’s amazing how quickly memories fade and markets move on. Around this time last year, we were busy encouraging everyone to avoid any emotion-driven panic. Six financial best practices we shared then focused on maintaining your steadfast resolve. That’s never bad advice, but in this considerably quieter year-end (at least so far!), let’s turn to a fresh new batch of financial best practices, to help you hit the ground running in 2020.

1. Revisit your tax plans. Old habits die hard. Although the Tax Cuts and Jobs Act (TCJA) is now in full swing, you’re probably still following a few well-worn tax-planning paths that may no longer apply. You (with your tax planner) may want to revisit them. For example:
   • Holding a mortgage is much less likely to offer the tax-deductible advantages it used to. Have you altered your payment plans accordingly?
   • Have you looked at creative new strategies for your charitable contributions, like establishing a Donor Advised Fund, to continue engaging in tax-favored giving?
   • Unless Congress acts to extend them, TCJA’s lower individual income tax rates will expire in 2026. Have you considered how the current, lower-rate environment might impact your retirement planning? For example, performing a Roth IRA conversion with after-tax dollars or gain harvesting to take advantage of lower tax rates may make more sense today than it used to.

2. Set up a password manager. Using a password manager to generate and secure strong passwords for your financial accounts is a widely accepted best practice. And yet, surveys suggest few investors have installed a password manager as recommended. Consider adding this important line of defense against hackers as a holiday gift to yourself. Use it to reset and strengthen all your financial account passwords.

3. Consider rebalancing your portfolio. Have you stayed the course in 2019, with a globally diversified portfolio reflecting your financial goals and risk tolerances? If so, that’s fantastic! But if it’s been a while since you’ve touched your portfolio, you may find some of your strongly performing assets have now overshot their target allocations. Depending on trading costs and tax ramifications, you may want to sell some of your winning asset classes from 2019 (in which you’re now over-invested), and buy recently underperforming ones (in which you’re now under-invested). It may feel counterintuitive to sell “winners” and buy “losers,” but not if you recognize you’re selling high and buying low.

4. Take advantage of $0 trading. If you’ve been watching the financial headlines this year, you may have noticed that many brokers have been competing to lower online trading commissions down to $0 for individual stock and ETF trades. Of course, if it undermines rather than advances your greater investment goals, even a “free” trade can cost you dearly. But zero-commission stock and ETF trades may have opened new cost-saving opportunities when managing your portfolio.
   For example, it might be a good time to deconcentrate out of any individual stock positions you’ve been hanging onto for no particular reason. Or, next time you’re engaging in tax-loss harvesting, you may be able to reduce the trading costs involved by identifying an appropriate ETF with which to maintain your portfolio’s target allocations mid-harvest.
5. Keep an eye on your cash. On those “free” trades, there’s a side effect worth noting. Brokerages are businesses, not charities. If they’re not profiting one way, they’ll need to profit somewhere else. One tactic we’ve seen brokers using is slashing interest paid on your cash accounts, charging market-rate interest on loans, and keeping the spread for themselves.

It’s important to maintain enough liquidity for near-term and  emergency spending, and to do so in an FDIC-protected or similarly protected institution. But you might consider looking beyond your brokerage accounts sweep account to earn market-rate interest on any significant cash reserves.

6. Live a little. You may not have noticed the news, buried as it was in a year’s worth of jittery geopolitical headlines: As of mid-December, investors have earned double-digit year-to-date returns across most asset classes. Not only might this warrant some rebalancing, you might find yourself on top of your financial goals. If so, you may want to be inspired by Benjamin Franklin’s sentiment from his 1736 Poor Richard’s Almanack: “Wealth is not his that has it, but his that enjoys it.” If you were a steadfast investor in 2019 and your portfolio is doing well, consider treating yourself to a bit of a year-end reward. You’ve earned it.

As always, we’re here to assist you in implementing any or all of these best practices – and more. In the meantime, we wish you and yours a most happy and health new year.

Disclaimer:

• This blog is a publication of Tobin Investment Planning LLC. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author on the date of publication and are subject to change. Content should not be viewed as personalized investment advice or as an offer to buy or sell the securities mentioned. A professional advisor should be consulted before implementing any of the strategies presented.
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• Tobin Investment Planning LLC is registered as an investment advisor and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability. The firm is not engaged in the practice of law or accounting.
• All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no guarantee that any specific investment or strategy will be profitable for a client’s portfolio. There are no guarantees that a portfolio will match or outperform any particular benchmark. Past performance does not guarantee future results.