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Make These Financial Moves As New Year Begins, Advisors Say

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W ith the New Year just underway, this is the perfect time for individual investors to evaluate how their portfolios performed compared with the indexes.

After evaluating the portfolio, you need to rebalance to your optimal asset allocation and determine what New Year's resolutions you need to make in your financial life. It's also a good time to evaluate the service you received from your financial advisor over the past year.

We asked Jeanette Garretty, a managing director at Robertson Stephens Advisors, a San Francisco-based registered investment advisor that has $1 billion in assets under management, and Bentley Blackmon, managing director of Stephens, a Little Rock, Ark., investment bank with $25 billion in assets under management, what adjustments investors need to make to get on track for financial success .

IBD: What should investors do at the dawn of the new year?

Jeanette Garretty: One tried-and-true discipline that we always pay attention to is to deploy any cash in the accounts and put it to work. We think the U.S. economy and the developed markets will grow this year, and we aim to grow along with them. We are watching emerging markets but not deploying cash there right now.

Bentley Blackmon: You need to move out of traditional fixed-income vehicles into strategies that are not doomed to go down in a rising rate environment, such as senior loans, securities that reset as rates go higher and emerging market debt.

IBD: Apart from specific investments, are there any broad portfolio moves that you recommend?

Garretty: The New Year is a good time to look carefully at your portfolio and make sure one sees it well and accurately. You need to know what assets you've got and why. What are they doing right now and what do you expect them to do in the coming year? If you can't see the answer, then ask questions to illuminate what has been working. It sounds obvious, but it doesn't always happen so easily.

Something we believe in is understanding cash flow. You really want to understand how the cash is coming out of the portfolio and how you are integrating it into spending for retirement and financial planning.

IBD: Outside of the portfolio, are there any broad personal finance moves you recommend?

Garretty: Depending on what schedule you've set up, it's also good to look at your will and any trusts. If you haven't looked at them in two or three years, this is a good time to take a look.

IBD: While it's pretty obvious we should look at our portfolios at least once a year, what about evaluating your advisor's performance?

Garretty: One should always take a look at what has been put in place by your advisory team on the will, trust or accounting side as well as the investing side . One should take some time to think and ask: Am I getting the support I need from that team in a very complex and confusing world? Are these people that I can talk to? Is my advisor answering my questions? Is she giving insight into what I'm doing and what I can expect? That often gets left out, but it's a very personal thing. What are they doing right? And what are they not doing for you? Is there something more you need? If so, what do you do about it? The (beginning) of the year is a good time to ask all these questions.

IBD: What are the biggest mistakes you see people make?

Garretty: The biggest mistake I see investors make is they have too much fear of every move in the equity market and every headline about the Federal Reserve Bank. There is still a lot of fear out there. They think that every down day in the market is 2008 all over again. There is a lot of fear of volatility and a lot of attempts to avoid volatility. That's why you still see high cash positions in these portfolios. The solution is to find a way that works for each person to manage the volatility.

Don't avoid it, but manage it. A starting point is to recognize that investing is emotional and you want to have somebody who can answer your questions and provide information, guidance and insight when you realize your emotions are taking over. I think investors have less fear when they understand how their portfolio works together.

Blackmon: One of the biggest mistakes we see is new clients coming in with a poorly constructed portfolio. You need to look at alternative strategies. We use a managed futures strategy. They make money when asset classes and investments are trending.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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