This year felt like a decade. We are twenty days from the start of a new year, and it can’t get here fast enough. I’m expecting next year to be much better because it can’t get much worse – right? It’s been a wild ride for investors this year, but if you stayed the course, you probably made money. The NASDAQ, S&P 500, and Dow Jones are solidly in the green, despite falling more than 30% in March and April. The NASDAQ is leading the major US indices this year, rising 38%.

It took courage to remain invested, and even more to buy stocks at the low. As we approach the new year, what should you do now? Here are ten ideas.

1. Review your financial plan and investment goals. Are you still on track? Do you need to make any adjustments? Last January, we helped clients review their financial plans. Several reached their goals, so we reduced the risk in their portfolios and adjusted their goals. We also encouraged our clients to remain invested during the March decline because it did not impact their long-term goals. Our financial planning process helped clients navigate the uncertainties of 2020.
2. Review your asset allocation. Are your assets appropriately allocated? January is an ideal time to rebalance your accounts to ensure your risk level aligns with your long-term goals.
3. Lock in profits. If you own a winning stock or two, consider selling some shares to defer your tax payment to 2022.
4. Maximize your company retirement contributions. You’re allowed to contribute $19,500 to your 401(k) or 403(b) plan, and if you’re fifty or older, you can add $6,500 for a total of $26,000. Note: If you turn fifty in 2021, start your catch-up additions on January 1. You do not need to wait until you’re 50 to start contributing. For example, if your birthday is on December 31, 2021, you can increase your contributions on January 1, 2021.
5. Maximize your SEP-IRA contributions. Do you own your own business? If so, you can contribute $57,000 or 25% of your income (whichever is less) to a SEP-IRA
6. Contribute to a Roth 401(k) or 403(b). Regardless of your income, you can contribute to a Roth 401(k), and your Roth contributions and earnings will grow tax-free.
7. Fund your IRA’s. The maximum contribution is $6,000, or $7,000 if you’re fifty or older.
8. Open a health savings account (HSA) if you belong to a high-deductible healthcare plan. Families can contribute $7,200, individuals $3,600. If you’re 55 or older, you can deposit an extra $1,000.
9. Open a donor-advised fund (DAF). A DAF is an excellent way to fund charitable donations. You can make significant contributions today and distribute the funds at a later date. If you want to donate to charities, but you’re not sure who should benefit from your generosity, this account is an excellent choice. In addition, you’ll receive a nice tax deduction.
10. Buy stocks. In a zero-interest rate world, it’s near-impossible to create wealth if you only invest in cash or bonds; you need to own a basket of quality stocks. The Dow Jones has risen 256% this century, or 7.15% per year. If you invested $10,000 on January 1, 2000, it would be worth $35,670 today. A similar investment in bonds is worth $14,470.

Creating generational wealth requires optimism, wisdom, patience, courage, and luck. To increase your odds of success, consider completing a financial plan. According to one study, individuals who finish one have three times more assets than those who do little or no planning.[1] It will guide you through rising markets, falling markets, good economies, bad economies, greed, fear, doubt, and anxiety; it’s a financial GPS.

Hope springs eternal, and I’m optimistic 2021 will be a year of joy and celebration. After all, the Roaring Twenties started not long after the Spanish Flu pandemic ended.

“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence” ~ Helen Keller

December 11, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Data source: YCharts

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[1] http://www.nber.org/papers/w17078