Skip to content

Are You Fiscally Fit? A Financial Check List For the New Year.

January 1, 2019
by Jack Reynolds

Creating a checklist of ‘to do’ items can be helpful in accomplishing one’s goals, and emotionally satisfying as one knocks items off the list. With that in mind, some years ago I created a financial check list. I have updated it here for you as you tackle your new year’s resolutions.

Each of our financial check lists will vary, but you may be surprised at how many items apply to you.

1)      Tax Related Considerations

  • Review your long-term capital gains.  Are they meaningful? Do you have long-term capital losses available to offset the gains? Should you harvest those long-term losses early in the year, allowing you to take some long-term gains without adverse tax consequences? This could permit you to reposition your portfolio with less tax pain.
  • Review your short-term capital gains.  Are they meaningful? Do you have short-term capital losses available to offset the gains? Again, should you harvest the losses early in the year?
  • Explore whether you (and your spouse) have used up your entire lifetime federal estate and gift tax exemption of $11.4 million for each of you! Many couples have a substantial unused lifetime exemption. Consider making tax-free intra-family gifts, if you can afford to do so. For even greater tax-efficiency, consider making generation-skipping transfers to a trust for the benefit of your grandchildren, or even to a dynasty trust. See my article, What High Impact Tax Planning Can You Do in September?  But don’t wait for September.
  • If you have exhausted your life time exemption, review, with your team of advisers, the appropriateness of making taxable intra-family gifts. This is not a crazy idea. Learn more about this from my article The Advantages of Making Taxable Lifetime Gifts.
  • Have you made your annual exclusion gifts for 2019? Why wait? You and your spouse may each give $15,000 to any one other person federal gift tax-free. If you have a spouse and you have a child with a spouse, that means that $60,000 can be given by a couple to each of their married children/spouse. Better still the exclusion gifts do not count against your lifetime exemption discussed above.
  • Think about your 2019 tax liabilities (both state and federal) to avoid being surprised later on by how much you owe – your first estimated payments for may be due soon. Work with your advisers to think about sourcing the required cash, potentially even through a line of credit, where your private banker can be of assistance. See my article Read This If You Still Think You Don’t Need Credit, or see my brief video Innovative Investment Solutions, A New Perspective on Credit.
  • If you have an offshore bank account, ask your CPA whether there are any steps that you should take with respect to that account. Offshore accounts are more common than is generally appreciated and can be a red flag for tax authorities in the U.S.

2)      Insurance Considerations

  • Consider spending some quality time with both your life insurance adviser and your estate planning counsel in the same room. While the prospect of having this meeting may not fill you with joy, it could be important both in terms of tax/liquidity management and estate conservation for your intended beneficiaries.
  • Review your property and casualty insurance There are myriad small factors that taken together, can dramatically impact the cost and efficacy of your coverage. You may be spending more than you think, or more than you need to. On the other hand, there may be inappropriate gaps in your coverage.

3)      Investment Strategy Opportunities

  • Have an offsite meeting of your investment committee and key advisers to evaluate your long-term asset allocation targets.  Are the targets still suitable? How does your portfolio conform to your targets? Are you comfortable with the divergences between your targets and your actual exposures?
  • Similarly, review your liquidity preference. Can you tolerate more illiquidity in your portfolio than you currently employ? If so, how would you and your advisers like to deploy an increased illiquidity budget?
  • If you want to rebalance your asset class exposures you may need to give some managers advance notice of your intentions. This is typically true of hedge funds and other investment partnerships.
  • Assess your cash flow needs (e.g., taxes, living expenses, both family and charitable gifts, partnership capital calls, and non-investment asset purchases) and whether you can use your cash flow requirements to reallocate assets back toward your long-term asset allocation targets. E.g., source your cash needs from asset classes where your actual exposures exceed your targets.

4)      Investment Tactics

  • Review each of your investment managers with your investment committee to see if any managers should be put on a watch list, or are candidates for replacement.
  • Has your view of passive asset management (e.g., index-related mutual funds and ETFs) vs. active asset management (e.g., mutual funds and separate account managers who emphasize security selection expertise) changed? Do you want to shift more of your exposures in favor of either active or passive management?
  • What opportunistic investments may be worth embracing? Are there asset types that have languished and whose time has come? Your advisers may have perspectives to share with you on this topic.
  • Take a close look at your balance sheet, asset allocation and performance reports. Are you getting all of the information that you need? If not, what are you and your team going to do about it?

5)      Take a Poll

  • Ask each of your advisers what their key issues are for you, and prioritize their ideas.  Some advisers are bashful or reticent about pushing their agendas; so, get your advisers to go on record about what they see as priorities for managing your investment/financial affairs, and what they want you to do about those priorities.

I hope that you find my financial check list helpful. If you have a Private Investment Counselor, he/she is a part of your financial life specifically to help you examine all of these matters. If you don’t have such a person in your life, consider whether you need one.

If you would care to, please give me a ring at 617.945.5157, or shoot me an email.