2012 mid-year money check up
(MoneyWatch) The European Union is once again on the brink of economic collapse; global economic growth is slowing; job creation has stagnated; and on top if it all, we're once again in the uncomfortable position of relying on lawmakers to address expiring tax cuts and reductions in spending across-the-board as part of the the debt ceiling deal (aka "the fiscal cliff").
Since you can't do much about these big-picture issues now, halfway through 2012, it seems to be a perfect time to revisit the financial issues over which you actually have control: your investments, retirement savings and some of those other New Year's resolutions that are already gathering dust.
Investments: Quit complaining about the markets and DO SOMETHING. Remember that if you are a long-term investor, periodic market pull-backs are great opportunities to rebalance your accounts so that your allocation remains in check. This requires that you override your emotional urge to keep winning funds and dump those that are lagging. But that's the point of asset allocation--various funds are supposed to move in different directions at different points in the economic cycle.
Also consider:
-- If you have never done so, take a risk assessment questionnaire, like this one from Vanguard: .
-- Replenish cash reserves for any bills that are coming up over the next year.
-- Replace actively managed funds with index or exchange-traded funds.
-- Book an appointment with your adviser/broker to review your progress.
Retirement: Many people say they are worried about retirement, but most of them haven't done any planning to help themselves. As I noted in my article "What's Your Retirement Number?" any conversation about retirement must start with an easy step: calculating retirement numbers. EBRI's "Choose to Save Ballpark E$timate" is easy to use, or check out your retirement plan/401(k) website for more retirement tools.
Real Estate: Nationally, home prices have tumbled an average of 34 percent from their peak in 2006,. Housing economists are predicting that home prices could stabilize this year, which means that now is a great time to shop for a house. If you aren't sure about taking the real estate plunge, check out this NYT rent vs. buy calculator for guidance.
If you already own a home, consider refinancing now! Mortgage rates are at historically low rates (for borrowers with good credit, 30-year fixed-rate mortgages are now an amazing 3.75%!) Use this re-fi calculator to determine how much you may be able to save or how many years you could potentially shave off the term of your mortgage.
One more item for homeowners: Make sure your property insurance is up to date. Summer often brings scary weather from tornadoes to hurricanes. Before an event occurs, make sure that your current coverage is adequate. According to insurance agent Stephen Testa of Testa Brothers Ltd in Northport, NY, the three biggest mistakes that people make when they're buying/owning a home are: 1) under-insuring; 2) shopping for price only and not comparing apples to apples; and 3) not reading policy details before a loss occurs.
Estate Planning: PLEASE DRAFT A WILL, IF YOU HAVEN'T DONE SO ALREADY! I advise hiring a lawyer to prepare a will, power of attorney and health care proxy/living will. If you insist on doing it yourself, you can use a software program like Quicken WillMaker. Other estate tips include:
-- Revocable trust: If your total estate is greater than $5 million (at least for the rest of this year), a revocable or changeable trust will shelter your unified tax credit against federal estate and gift taxes. Many states impose a state death tax at lower levels, so check the rules. Even if your estate is unlikely to incur estate taxes, you may want a trust to better control the disposition of your assets. Revocable trust assets are not subject to probate.
-- Documents: All of your estate documents and final instructions should be stored in a safe place - don't forget to provide copies to your executor/trustee.
With these bases covered, you'll be in much better shape as we move into the second half of the year!
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