Dear Nancy Woods,
Now that horrible 2011 is over, we have a new year to be optimistic and look forward to. As an investor, what should I be doing for 2012 to prepare myself?
Signed, Martin
Dear Martin,
Yes, 2011 was a difficult year as an investor. With looming default possibilities, deadlines and downgrades, investors did not know what was happening or going to happen. The constant news being bombarded at us 24/7 can be very distracting from our real goals and focus.
Psychologically, this is the starting point for a fresh start. It is the ideal time to start doing or asking for a portfolio review.
Here are some things to do:
1) Find out what the return on your portfolio was last year.
2) Check the asset mix between equity and fixed income.
3) Find out the yield of everything that pays an income, be it interest or dividend. (Interest paying investments are best held in a registered plan, like as RRSP or TFSA).
4) Check the holdings that you are losing money on and see if they pay an income. If not, find out what the future prospects for it are.
5) If you have a holding that has a gain, consider reducing part of the position because it has a high percentage weighting in the overall portfolio.
6) Review your financial plan for accuracy and suitability. If you have had any major life event change (like a divorce, layoff, pending retirement, etc), make sure your financial plan has taken that into account.
7) Review your will and power of attorney for property and health.
8) Review your insurance coverage not only for death, but long-term disability and critical illness coverage.
9) If you have a RIF account see if it makes sense to withdraw your minimum payment in kind at the beginning of the year versus later. Or, set up monthly withdrawals to better suit your cash flow needs.
10) Contribute to a TFSA account either with cash, in kind, or set up a monthly plan.
If you are working with an investment adviser, you can also review the investment policy statement for appropriateness.
Consider this annual review a good housekeeping habit to get you ready for the new year. It could be the positive growth all the optimists are hoping for, or it could be a repeat of last year where everyone needs to put on their seatbelts. Let's hope it's the former.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com or visit her web site at nancywoods.com
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Nancy Woods