Thanksgiving is right around the corner and the hectic holiday season is coming soon, so there's no better time to get your money matters in order and nail down a 2016 game plan.
Here's a checklist of what your annual financial checkup should include:
1. Do a "risk tolerance" profile. Were you a basket case when the stock market cratered this summer, suffering its first 10%-plus drop in four years? If so, your portfolio might be too risky for you. The fix: "Perform a personal stress test to determine if you can stomach, say, a 25% loss in your portfolio," McMahon says.
2. Rebalance your portfolio. Is your mix of stocks, bonds and cash out of whack? Now's the time to make sure you have the proper helpings of stocks and other financial assets, says Nancy Coutu, co-founder of Money Managers Financial Group, a financial planning firm based in Oak Brook, Ill. The fix: "Rebalance and get back to your allocation," Coutu says.
3. Conduct a "debt inventory." If you owe too much money, map out a plan to pay down debt. "Debt can creep up on you," McMahon says. The fix: "Develop a debt elimination strategy," he says.
4. Bolster retirement savings. Nurture your nest egg, Coutu advises. The fix: Take advantage of a Roth individual retirement account, she says. Roth IRAs, while funded with post-tax income, don't tax gains. Coutu's recommendation: Fund your 401(k) first, but only up to the amount needed to get all of your company's match. Next, fund your Roth IRA. If any funds are still available to save, direct those dollars into your 401(k), which is funded with pre-tax income but is subject to taxes on gains. "Most savers contribute the maximum to their 401(k)s and forget to contribute to Roth IRAs," Coutu says.
5. Grade your kid's college fund. Buying and forgetting 529 college investment savings plans isn't an A+ strategy, McMahon says. Why? If your kid is within a year or two of college and the 529 plan is 100% in stocks, a market downturn could erase savings at precisely the wrong time. The fix: "Check how 529s are invested and whether it's appropriate," McMahon says. If the 529 plan is too stock heavy, pare risk back by shifting to more cash and bonds.