Here is a checklist of things to evaluate right now:
- Costs- Evaluate the internal costs of the funds you use. Depending on the share class, actively managed funds have internal expenses ranging from 0.75% to 2.35%. What do they provide for the cost? Underperforming funds. Over the past 5 years, 74% of actively managed funds underperformed their benchmark index.* I advocate the use of index funds (ETF's or Mutual Funds) with low expenses 0.3% or less. Part of the money you save from your investments can be used to employ an independent financial planner who will get to know you, understand your goals, and create a plan to meet those goals.
- Taxes- This is the time of year where actively managed mutual funds distribute capital gains to shareholders based on the buying and selling inside the fund. The amount that is distributed reduces the overall price of the fund and you are taxed on the amount distributed. This is unfortunate because in all likely hood you will be paying taxes when your fund has lost money. Avoid taxes by buying index funds which rarely distribute capital gains because the stocks inside the index rarely change.
- Revisit the goals of your plan- How has your portfolio performed in this market? Have you lost more than you feel comfortable losing? Will you be delaying retirement? How has your situation changed?
- Reallocate- With all the movement in the market most asset allocations are out of whack. After you determine your updated goals and risk profile, look at your current allocations and make adjustments. This can be done in two ways: When new money is brought in buy assets that you want more of. Or sell the asset you want less of and buy the asset you want more of. Be aware of tax consequences when doing selling.
- Set up a dollar cost averaging plan- There are huge sales on stocks and certain bonds. This is a huge opportunity that disciplined people will take advantage of. Sure, times are bad and a turnaround does not seem on the horizon but we will come out of this. And it probably will happen without anyone knowing. Don't try to time the bottom. Buy in pre-determined increments of diversified assets. The adage is buy low sell high. Well, it looks like things are low to me.
Be patient, save as much as you can, and and have someone like me, a fee only, independent investment advisor help you.
*http://biz.yahoo.com/prnews/081113/ny45959.html?.v=1
