1. Do a savings/spending check. Is the client is still on track to reach their goals? For those still accumulating, tally all contributions for the year, and see if the baseline savings rate is 15% or higher, Benz recommends. Retirees need to check their withdrawal rate, that is, planned portfolio withdrawals for 2020 divided by total portfolio balance at the beginning of the year. A good guideline is 4%, but due to lower bond rates, some argue that should be lower. “There’s still time to rein it in,” she says.
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2. Access the asset allocation. Next, do a portfolio check and compare actual allocations to client targets. Benz notes that though the first quarter was “rough,” stocks regained a lot of ground in the second quarter. Many of those — usually younger — clients with a tilt toward stocks will be fine. But older clients with a too-heavy stocks portfolio may have more risk, and be underweighted in cash and bonds, which can help the portfolio in rough times. Benz says those within 10 years of retirement may need to de-risk and shift more money to bonds and stocks. Keep in mind that tax consequences may ensue, so focus on tax-sheltered accounts or safer assets, she says.
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3. Assess adequacy of liquid reserves. Checking a client’s level of liquid reserves is key, especially now, when clients may need more cash, Benz cautions. Clients should have a three- to six-month cushion of living expenses in reserve, and more for higher income workers. Retirees should have six months to two years’ worth of portfolio withdrawals in cash investments, Benz says. She adds that “cash yields have declined to a pittance,” so it’s worth shopping around for better rates.
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4. Assess equity positioning. Now take a closer look at the client’s portfolio and determine broad asset-class exposure and check each asset class weighting. Domestic growth stocks and funds still have outperformed value this year, Benz says. A benchmark for a total U.S. market index fund, she says, holds 25% in each large-cap style of growth, core and value, 6% in each mid-cap and 2% each in small-cap.
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5. Evaluate fixed income exposures. Benz says this year the “safest bond funds have held up the best.” This bolsters the point that “the most boring, highest-quality bonds will tend to hold up best in market shocks.” Therefore, diversify the bond funds. Lower-quality bonds should be thought of as “equity alternatives, not bond substitutes,” she says.
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6. Check all holdings. Check all individual holdings, such as mutual funds and ETFs, and make sure all are living up to their potential. She notes that some red flags include a manager or strategy change, persistent underperformance relative to cheap index funds and “dramatically” heavy stock or sector bets. For individual stocks, check for high valuations and negative moat trends, Benz advises.
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7. Make changes judiciously. Changes made to a client’s plan will depend on the type and severity of issues found, in addition to where the client is in their life stage. Obviously, those years from retirement can withstand the stock volatility, but if changes are made to reduce stock holdings, definitely check tax consequences. For those closer to retirement, Benz says, changes may be “more pressing.” Those who have been more aggressive may think about “redeploying some [of an] enlarged equity portfolio into cash and bonds.”
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It’s been a grueling 2020, and portfolios have taken hits — dropping precipitously in March, and partially recovering in fits and starts since, largely due to economic, coronavirus and political turmoil. Especially this year, now is a good time to do a midyear check on portfolios, writes Christine Benz, Morningstar’s director of personal finance.

In A Midyear Portfolio Checkup in 7 Steps, Benz recommends steps investors — and advisors for their clients — should do to determine where the person is in retirement savings, and where they are headed. Check out the gallery to see those steps.

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