Annual investment review – Six questions to answer

1. Is your investment strategy on track?
2. Are you saving tax-efficiently?
3. Are you protecting your income?
4. Are you saving for retirement?
5. Are you protecting your income?
6. How does your plan affect your family?

An annual review of your investments and other financial matters is the best time to think about where you are at in achieving your long-term goals and where you would like to be. Rather than reacting emotionally to every change in the markets, an annual review provides a space in which to make rational, considered investment decisions. It also allows you to take a close look at your day-to-day finances to uncover hidden opportunities and then commit to meeting them.

1. Is your investment strategy on track?
An annual financial check with your advisor provides an opportunity to review key considerations – time frames, risk tolerance, needs and preferences – and discuss any potential corrective actions needed to make sure you are on track to meeting your goals. Some, such as saving for a child’s education or your retirement, may be long term. Others, such as a car purchase or house extension, may be short term.

It’s possible that your current asset allocation has changed since the last review, due to the different performance of the various investments in your portfolio. If that’s the case, or if your outlook has changed, it may be time to readjust. You can then make adjustments to take account of any changes in your situation and implement any rebalancing that might be necessary in view of the past year’s market performance.

2. Are you saving tax-efficiently?
While taxes should never be the sole driver of an investment strategy, better tax awareness does have the potential to improve your returns. You need to remember that certain types of investments receive favourable tax treatment and you always need to keep gift, inheritance and estate taxes so you can minimise your potential exposure and keep more of your assets for your loved ones.

Investing tax-efficiently doesn’t have to be complicated, but it does take some planning. Exploring ways to help defer, reduce or manage taxes on your investments more efficiently should be a part of the diversification strategies that you apply broadly to your overall portfolio. And if your year-end planning entails selling certain assets, be aware of rules regarding capital gains and losses.

3. Are you protecting your income?
Income protection is one of the most important elements of any financial planning. Insurance is one of the most effective ways to manage any risks that could diminish your lifestyle. Developing an insurance portfolio that will not only protect your assets but also provide liquidity is a vital part of the wealth management equation.

If you have received a pay rise, increased your mortgage, switched jobs, got married, got divorced or had a child you may need to review your existing income protection arrangements to make sure you have the right amount and type of insurance to cover unforeseen circumstances that could derail a financial plan. If your family is growing you may want to increase the amount of your life insurance, but if your children have reached adulthood you may choose to reduce your life insurance and apply the savings toward your health insurance, which generally increases in cost as you age.

An annual review is a good time to do an analysis of all your insurance needs and also include a simple check of your insurance beneficiary designations to see whether they are up to date.

4. Are you preserving your assets?
Your annual review should ensure that your estate plan continues to reflect your family status, your health and your financial situation. Ensure that it helps make the best use of the latest estate and tax laws, and that key individuals know where to find relevant documents and information.

Those with shorter timeframes have a greater focus on capital preservation, as they have less opportunity to recover in the aftermath of a serious market correction. Conversely, those focused on returns 15 years down the line have the scope to take more risk for potentially greater rewards, albeit with shorter-term risk.

If you do have an estate plan, do the people you care about know about it? Where is it, and what role should your loved ones play if something happens to you? Marriage, divorce, birth, and death are the 4 big events that affect estate plans, but you may also want to consider other factors, such as longevity and health, that could affect your planning.

Thinking about a will, health care proxy, and power of attorney can be uncomfortable, but consider the alternative. Do you want someone else making these decisions for you? If you don’t have any of these key documents, take the time to set them up. If you have them, review not only your paperwork but any life events that have occurred. Changing careers, moving, having children or grandchildren, or losing a loved one can have a big impact on your plan overall.

5. Are you saving for retirement?
Saving for a comfortable and prosperous retirement should be at the top of your financial planning list, wherever you live and work, because life expectancy is higher today than ever before. Pensions are also one of the most tax-efficient ways to save, particularly for higher-rate taxpayers.

A flexible retirement plan can help you accumulate long-term capital and provide a worthwhile return while taking advantage of pension-related tax benefits. For the internationally mobile individual, there are many additional aspects of retirement planning to consider and it is essential that the chosen solution should be correctly structured to suit your circumstances.

6. How does your financial plan affect your family?
It’s not just your retirement or financial future that you are planning for. You may also be looking to provide financial assistance to a number of other dependents, which could affect your financial goals, priorities, and outcomes. An annual review can help prioritise financial decisions that are needed to assist families and entrepreneurs around the world to structure their assets in a way that will help to grow their wealth now and preserve it for future generations.

Sovereign can advise on all aspects of the design and implementation of structures, using trusts, foundations, companies and funds, in domestic as well as overseas jurisdictions, to hold assets and investments for secure, efficient wealth and succession planning.

While some of our clients are based only in a single location, many are international families with assets and family members spread across different countries. Sovereign has broad experience in managing trusts and estates with complex structures involving assets and beneficiaries in multiple jurisdictions and the legal, tax and compliance issues that arise when the laws of several jurisdictions may apply.

Contact Loredana Bacterova at Sovereign Wealth
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