Assets & Answers: 1.30.19

With the recent market fluctuations, what are your tips for starting off 2019?

—David Ott, chief investment officer, Acropolis Investment Management
The stock market has been rocky recently, but 2019 is a new year, and most financial planning strategies make sense no matter what the market is doing. A critical start is understanding your income and expenses, usually with the help of software like Mint or Moneydance. Once you know what’s coming in and going out, you can start to develop a savings plan.

The first element of a good savings plan is an emergency account. Most advisers suggest keeping three to six months’ worth of your salary in a safe, high-yield savings account. At just over 2 percent, the interest rates aren’t high, but they’re better than they were a few years ago.

Next, eliminate your ‘bad’ debt, but keep your ‘good’ debt if it makes sense. Credit card and consumer loan balances are bad debt because the interest rates are high and often are used to finance consumption. A mortgage is a  example of good debt because the rate is low, there may be a tax benefit, and it is a liability against a home, which could increase in value over time.

Once your emergency savings account is in place and your bad debts are under control, make your annual IRA contributions, which increased from $5,500 to $6,000. Similarly, contribution limits for a 401(k) increased from $18,500 to $19,000, so contact your plan administrator about changing your contribution. Advanced planning also could include a ‘backdoor’ Roth contribution, a strategy that was ‘blessed’ by Congress in 2018.

---

—Maurice Quiroga, senior vice president, Wells Fargo Private Bank
1. Be alert to fraud, especially if you or your loved ones are near the age of retirement or planning for senior living arrangements. Help your loved ones by adding a trusted adviser or contact to their accounts to help them uncover anything suspicious.

2. Remember diversification helps protect the value of your portfolio if one or more of your investments performs negatively. This means spreading your risk among stocks, bonds, cash and alternative investments. Talk to your investment advisers to ensure you are diversified.

3. Save for retirement. Don’t wait until you are older or making more money. Begin early and remain committed. Take advantage of every employer sponsored program to help you save. This includes saving for your kids’ college by establishing a 529 for them at birth and not waiting until they are older. Imagine the growth potential of a 529 investment from birth to age 18.

4. Higher returns mean increased risk. Only you know how much risk you really want to take with your money, so make sure your investments and your advisers understand your risk tolerance.

5. Talk to your tax adviser about the changing tax laws, and ask if you qualify to itemize or not. Understand your tax situation and how you can work with your CPA to lower your taxes and take advantage of any tax benefits offered by the IRS.