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Questions to ask your financial advisor for 2014

January is a good time to prepare financially for the year ahead. Work with your financial advisor to craft a strategy so you can plan for the future. Here is a list of questions you should ask your advisor:

1. What’s my true financial condition at this point in time?

You can help your advisor evaluate your true financial situation by providing complete information, including bank savings accounts, tangible assets and real estate.

While substantive new income tax or capital gains tax policies may not emerge in 2014, you may have made an investment transaction that has tax implications. If so, you’ll want to prepare well in advance for potential tax payments or penalties.

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2. Do I need to change my investment mix of stocks, bonds and cash?

If you can answer yes to any of the following questions, it may be a good time to re-examine and potentially readjust your portfolio selections:

  • Have you or your spouse or partner lost a job, changed jobs or retired?
  • Did you get married or divorced?
  • Did you have a child or become a grandparent?
  • Have the health care needs of you, your spouse or your children changed?
  • Will your son or daughter need money for college tuition and expenses?
  • Are you helping to support a child who is unemployed, or are you now supporting a parent or parents?
  • Have you altered your anticipated retirement date?

3. Is my portfolio out of line with my investment goals?

Investment portfolio allocations can shift over time without your knowledge. For example, the stock market’s rise in recent years may have consequently made your asset allocation too stock- heavy because of the appreciation in value of stocks and stock funds.

Investment vehicles such as target date funds provide automatic rebalancing, which can help keep your portfolio on a more consistent path and aligned with your investment goals. Ask your advisor about potentially reallocating your investments if they’ve diverged from your investment objectives or risk tolerance.

4. Are there ways I can adjust my portfolio to help minimize risk?

The less risk in an investor’s portfolio, generally, the less potential for a higher return.

Some investments have less risk — U.S. Treasuries are backed by the full faith and credit of the U.S. government, and bank savings accounts are FDIC-insured, for example — but those investment vehicles typically offer a low rate of return. Increasing or decreasing investments in your portfolio is a decision only you and your advisor can make.

“It shouldn’t be about stocks or bonds,” says David Hoag, an American Funds portfolio manager. “It’s about the correct proportion of each based on an investor’s risk profile and needs, and within an investor’s needs, making the right decisions.”

5. How might rising interest rates affect my portfolio?

When you hear the term “interest rates,” typically it refers to the federal funds rate, which is the rate that banks charge other banks to borrow money. When the interest rate is raised, it makes borrowing money more expensive, which affects how consumers and businesses spend. It’s the way the Federal Reserve (“the Fed”) attempts to control inflation.

An increase in interest rates typically causes banks to increase the rates they charge their customers to borrow money. Consumers are affected by higher credit card and mortgage rates, leaving households with less disposable income, which in turn can affect business revenues. These factors can be a drag on a company’s profits, which may hurt the value of its stock.

Bonds have an inverse relationship — as interest rates go up, bond prices go down. Whether interest rates remain exceedingly low or begin to rise, there are fixed-income investments that can help provide some income stability to an investor.


Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.