Though 2020 saw many challenges, stock and bond markets generally saw gains despite elevated volatility. 2021 will offer no shortage of challenges too, if history is any guide, but here are two tips to get your investments in order for whatever the markets have in store in 2021.
Check Your Fees
In financial markets fees have been on a general decline over recent decades. Low-cost ETFs have made diversified investing cheaper, brokerages have cut trading fees, sometimes to zero, and certain asset managers, such as robo-advisors have bought down industry fees as well.
However, if you donâ€™t shop around every few years, you may not see the benefits. Itâ€™s often newer products and services that carry these lower fees. If you simply stick with the same services youâ€™re always had, then you may not benefit.
Trading in U.S. stocks is now free at many brokerages. Funds tracking most indices are available for under 0.3% a year, and often virtually zero, for popular indices such U.S. large cap stocks.
Finally, online asset management services can cost under 0.4% a year in total. Check what you are paying because there may be a better deal out there. Also, donâ€™t be fooled by the small percentage numbers. For example if you have $200,000 invested, then cutting costs by 0.5% saves you $1,000 a year. Thatâ€™s worth a bit of effort.
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Check Your Allocation
The U.S. markets have been on a tear over the past decade. 2020 was another strong year for U.S. stocks with the S&P 500 looking to be up around 15% for the year.
There is no magic rule that says the U.S. is always the best place to invest. Indeed, in past decades other markets have handily beaten the U.S. The challenge is that if youâ€™re like most investors, as U.S. stocks rise in price, so they become a bigger proportion of your portfolio. This isnâ€™t something to keep an eye on every day, but the turn of the year, can be a good point to evaluate your portfolio. You may find that your U.S. allocation is now higher than you initially intended. If so, selling some of your U.S. exposure and moving the funds into other assets may help balance your portfolio. This can help control risk should the U.S. markets falter.
Neither checking your fees nor checking your allocation should take too much time, but they are both relatively high reward tasks when it comes to investing. If you can reduce your fees and obtain similar services, then thatâ€™s potentially a simple boost to the investment returns that you get to keep. Secondly, keeping your allocation in balance over time can help manage risk, especially if you havenâ€™t checked your allocation in the past year. We donâ€™t know what 2021 will hold, but itâ€™s historically been true that keeping an eye on fees and balancing your allocation have helped manage your risk and returns over time.