Spring cleaning doesn't need to apply only to your home. It's a good time to check the state of your finances, too. Morningstar, director of personal finance & retirement planning Christine Benz shares some tips in the video above.
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We're looking at some of the ways that you can spring clean your finances and set yourself up with a good financial habit and runway for the rest of the year. Today, we're focusing in on organizing your investments. And here with more, we've got Christine Benz, director of personal finance and retirement planning at Morning Morningstar. Christine, great to have you here with us. Let's let's start nice and easy with a lot of people's worker sponsored retirement plans, aka the 401K. So, what can you be doing there to make sure you're set up for the year ahead?
Well, we're still early in the year, so it's a good opportunity to see how much you're saving. We have seen the contribution limits lift a little bit over the years with inflation. So, if you're under age 50, you can get 23,500 in there. That's the max. If you are over 50, it's 31,000. And then there's this ketchup, this super ketchup contribution that's available for people who are getting quite close to retirement. So, between 60 and 63, you can get almost 35,000 into a 401k. So, see how you're doing in terms of those contributions, because it's just such a nice low maintenance way to get money into your account on an ongoing basis.
So, moving beyond your 401k, how can you clean up your broader portfolio and make sure the investments are working for you?
Well, a really good thing to look at today would be your portfolio's mix of stocks, bonds, and cash. Use a tool, we've got a good one on morningstar.com, but there are lots of tools available where you can check up on how your portfolio is apportioned and then compare that to your target for your asset allocation. And at this point a lot of people might say, I do not have a target, in which case you can either get some financial advice or you can use kind of a quick and dirty route, which would be to look at a target date fund that is geared towards someone at at your anticipated retirement date, see how they are allocating their assets. Today, I think a lot of older adults, like people over 50, are pretty underweight relative to the reasonable targets for safer assets. It just has not been a great place to invest over the past several years to have investments in fixed income, but I think that safety is really important for people at that life stage to at least have something in safe assets. And then people who are younger, really check that non-US relative to US allocation. US equities have been the path of least resistance over the past couple of years. So, many investors are pretty underweight non-US, and of course, that's where the action has been so far this year.
And so the major key of this conversation also may come in two words, and that is risk check. How can people who are viewing make sure that they are performing a risk check to make sure that they're on track with their investments and balancing that risk reward?
Yeah, so checking up on that asset allocation is a key part of this. Also check your portfolio style and sector exposure. You were just talking about the tech names, Brad. Well, even though they have had bouts of underperformance so so far this year, many investors are quite overweight in those US large cap tech stocks. Maybe they will continue to perform well, but most investors are pretty heavily tilted there. So, check up on your style and sector exposure and see if you can't get more into some things that haven't performed as well that may do so in the future. Also check those company overweights. So, many people receive incentives via employer stock. That's a really risky area to be in because so much of people's financial wherewithal is lying writing on their employment.
There's a couple weeks left until taxes are due, but how can you make sure that you're utilizing tax efficient investment strategies for the year ahead?
So, first, make sure that you are maxing out those tax sheltered account types, whether company retirement plans, IRAs are a good contribution opportunity. If you didn't contribute to 2020 in 2024, you can sneak in a contribution before that tax filing deadline. If you are someone who has the wherewithal to have investments outside of retirement accounts, you just want to make sure that those are positioned as tax efficiently as possible. So, there are broad market index funds make sense, exchange traded funds that track the equity market are good options. For higher income people who need to have safer investments in those taxable accounts, you'd want to look at municipal bonds. So, those would be some kind of best practices, and then in retirement, there's a lot you can do in terms of managing the tax burden of the money that you're pulling out of your retirement accounts.
Christine, thanks so much for taking the time with us.
Thank you so much, Brad.
