MAKING CENTS: Expanding your annual financial check up

As the calendar marches toward the start of another year, there are certain financial rituals that many astute investors embrace. They routinely scour their portfolios for gains or losses to harvest, look to see that their allocations are in line with their expectations and look around for ways to reduce the income taxes they’ll pay for the year.

These are all good practices, but this year I’m going to ask you to expand the scope of your year-end rituals to include matters frequently ignored.

Start with a re-cap of the past year. Look at income and expenses, and compare that with where you expected to be for the year. Did you save as planned, did you pay down debt and in general did your cash flow stay the path that you need to accomplish your objectives?

Now look at last year’s forecasts and compare that to where you stand today. Are you still on track to retire by age 68? What changes may you need to make in the upcoming year to get back on track?

An annual examination of assumptions versus actual in your financial forecasts can help alter courses to get you back on track.

As you are looking through your portfolio, ask yourself if you have significant concentration risk. Concentration risk is when one or more investments occupy too much space in your overall portfolio. How much is too much is open for discussion, but many experts feel that any more than 10 percent of your portfolio in one holding may be too much.

For married taxpayers with taxable incomes less than $75,000, the capital gains tax rate will be zero. All too often I see people with concentrated positions because they are afraid of paying taxes on the gain. If that position later suffers dramatic losses, most investors wish they had sold and paid the tax to salvage some of the value.

Take a look at your insurance policies. Are you adequately covered for any perils? Perhaps there are new issues in your life such as an underage driver or an inherited house that you now own with your two siblings. Also take a look at your life insurance. Some types of extended term life insurance, for example, have consequences including the termination of coverage at the end of the stated term.

Look at your wills and trusts. Do the executors, guardians and inheritance provisions still make sense?

For most, the guidance of a skilled professional is beneficial. If you always do it yourself, you may be consistently overlooking the same things.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.