July’s Financial To-Dos

We’re now halfway through the year. Have you made the financial progress you were hoping for? Now is a good time to tackle one or two tasks to help you make incremental headway. You’ll be surprised how much progress you can make if you focus on just the most pressing item or two each month.

With that in mind, we’re offering a few key financial tasks each month. If you’re unsure where to start in your money management, try the items below.

Review whether a portfolio rebalance is needed

As your individual investments change in value throughout the year, your portfolio may get a little out of whack. An occasional rebalance can help you steer clear of unintentional risks, such as a stellar stock becoming too much of your overall net worth.

Rebalancing should take you back to the parameters described in your Investment Policy Statement (see June’s to-dos). Most workplace retirement plans, like 401(k)s, have auto-rebalance features, and this allows you to set your account on autopilot.

Conduct a cost audit

Now is also a good time to make sure that fees inside your accounts aren’t eating into your performance. Some costs to review:

• Account fees: sometimes assessed annually for holding accounts
• Fund expense ratios: the internal costs that mutual funds or exchange-traded funds charge before passing on returns to investors
• Trading fees: for buying and selling holdings
• Commissions: charged by advisors when transactions are completed
• Management fees: charged by investment advisors for management of the accounts

It’s nearly impossible to avoid all fees, so the goal is not to strive for zero. Investment services, including utilizing a professional advisor, can save you from major pitfalls. But if not managed, these “frictional costs” of investing (as Warren Buffett calls them) can really add up and eat into your returns.

In particular, look for unnecessary fees that can be eliminated or reduced by using other options. For instance, a review of two real S&P 500 Index funds provides a clear example:

Fund A (mutual fund): 5.00% sales charge and 0.66% ongoing

Fund B (exchange-traded fund): No up-front fee and 0.04% ongoing

Both of these funds attempt to track the same index of roughly 500 large US companies. An investor utilizing the more expensive fund, however, needlessly pays an up-front fee and more than 16 times the ongoing expenses — for nearly identical underlying investments.

Evaluate your spending plan

You’re half-way through the year — how is your budget holding up? It’s typical for expenses to drift some throughout the year, so this month is a good time to confirm you’re on the path you intended.

If you regularly track spending, run a six-month report to compare each monthly category to what you wanted to or planned to spend. Are you making progress on any intentional goals, like saving or reducing debt? How do you expect the last half of the year to compare?

The goal of budgeting is always awareness and intentionality. You can only know how your spending aligns with your values and goals when you actually review it.

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