Investors’ Best Approach to the New Year

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Brian Cochran

Written By Brian Cochran, CFP®, Certified Kingdom Advisor® Financial Planner

2017 was a memorable year for investors. Markets around the world produced above average returns with limited volatility. US markets were exceptionally calm with positive returns every month of the year for the first time in history. The US economy is nearing a record for consecutive months of growth. We added over 2,000,000 jobs in 2017 and saw a spike in consumer and business confidence. And the year ended with tax reform legislation that will affect nearly every family and business. As a result, several large corporations responded with bonuses for all employees, commitments to investing capital and increased charitable giving.

In this atmosphere, one might expect risky or greedy behavior from investors. Instead, I get the same question from almost everyone: “When is this bubble gonna burst?” Experienced investors remember 2008-2009 and will do anything to avoid reliving that experience. Everyone feels like they should take some action, but what? Is it time to sell before the next correction, or will imminent tax reform justify taking more risks?

My experience is that investors make their biggest mistakes after exceptionally good or bad times in the markets. Highs and lows in markets trigger an emotional response that can override rational thought. Rather than respond emotionally, there are some logical steps you can take:

Revisit your plan.
A financial plan should be designed to meet both short and long-term goals. I recommend you pull it out and evaluate where you stand. What was your target investment allocation? Is it still the right target? Are you now ahead of schedule? Is there a deficit or surplus that requires attention?

After such a good year in the markets, you likely have a greater percentage of your portfolio in stocks. It may be wise to trim back your stocks and return to your target allocation. Take a little from what performed the best and give it to what did the worst.

Be generous.
Consider giving away some of your profits. Whether to charity or family, you may have extra margin to be more generous. Be sure to revisit your giving strategy to ensure it fits well with the new tax code.

Spend wisely.
Is there a large expense that you've been putting off? Maybe it is time to take some profits to repair the roof, remodel the kitchen or even take a vacation. Be sure not to spend beyond the sustainable spending level set by your financial plan.

Reduce debt.
Pay off credit cards, auto loans or even your mortgage. It is hard to argue with taking profit from investments to pay off debts and free up future cash flow.

Not sure if you and your investments are prepared for the new year? The team at John Moore Associates is happy to answer questions about your financial plan, investment allocation, or your giving or spending strategy. Call John Moore Associates today at (888) 815-5100 and talk to one of our financial advisors.

The information provided has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Brian Cochran and not necessarily those of Raymond James. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Raymond James financial advisors, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Asset allocation does not ensure a profit or guarantee against loss.

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