1. Take stock of your portfolio strategy
After several strong years in the stock market, investors face both opportunities and risks heading into 2025. The significant outperformance of a handful of large U.S. technology stocks, the strength of the U.S. dollar, continuing trends in deglobalization, and direction of interest rates all may play a role in your forward-looking strategy. Uncertainty around impact of any policy changes enacted by the incoming administration will likely feature heavily in headlines over the year. Based on the totality of factors, balancing short-term tactical shifts with a long-term diversified approach is still likely to be a strong investment approach to navigate 2025.
A good time to review your investment portfolio is early in the year. Here are a few questions that will help guide considerations:
- How do my overall portfolio allocations compare to my targets? Are there any rebalancing opportunities to consider?
- Are my current cash reserves adequate? Do I need to adjust my balances?
- Are there any opportunistic alternative investments that may be appropriate in light of recent market activity? This may include any opportunistic strategies in certain areas of the debt and private equity markets and where they may fit within your broader plan.
2. Ensure you’re set to maximize your retirement plan contributions
Consider these limits when reviewing your contribution levels:
- 401(k), 403(b), and 457 plan participants can defer up to $23,500 of their wages, with another $7,500 possible for those ages 50–59 or 64 and older. For those aged 60–63, additional contributions up to $11,250 can also be made. Total defined contribution plan limits (including profit sharing, employer contribution, etc.) total to $70,000.
- You can contribute up to $7,000 to an IRA and an additional $1,000 for those over age 50.
- Those with health savings accounts can contribute up to $8,550 (family) or $4,300 (self-only) and another $1,000 for those over age 50.
3. Optimize yield strategies
Savers and investors still have a variety of attractive options today to generate yield without taking much, if any, principal risk. For example, brokerage money market funds are yielding more, often significantly so, than checking and savings accounts at traditional banks. Savers should remain wary of holding significant cash balances in banks, paying special attention to FDIC and NCUA limits.
High yields can also entice investors to lean too far into cash relative to what they need in reserve. Keep in mind balancing attractive rates with a sound long-term investment strategy. While cash remains an important part of any investor’s strategy, for funds beyond cash reserve purposes, bonds, stocks, and alternatives may still offer more long-term value, especially if the Federal Reserve continues to decrease short-term interest rates.
4. Practice sound cyber identity and security practices
Online cyberattacks and scams continue to grow in both quantity and sophistication, an existing trend accelerating with the growing capability of artificial intelligence. Keeping in mind sound family cybersecurity practices can reduce the chance of major breaches and identity theft. For parents, teaching these practices to children who use the internet is vitally important.
And for families using a single or multifamily office operating model, policies and procedures should be evaluated periodically. As the risk environment grows, so too does the need for recurring reviews to ensure security protocol evolves with the changing dynamic.
5. Reaffirm your personal risk management strategy
Review your property and casualty insurance coverages to confirm what’s covered — and what’s not — and determine if any changes are warranted. If you own coastal property, you may be seeing the marketplace continuing to change dramatically in your location. Check with your agent to review your coverages and get ahead of any potential surprises at this year’s renewal if it hasn’t already occurred. And don’t forget about your personal umbrella policy; consider whether your limits are adequate and all appropriate assets are listed on the coverage such as ATVs, boats, and rental properties.
6. Check on any education funding changes
Education accounts require regular evaluation to ensure projected balances align with the evolving plans of young beneficiaries. Additionally, the backdrop for college costs continues to change. Many top-tier schools continue to push forward with tuition increases while some other institutions are starting to protect enrollment numbers through cost decreases (published or, more likely, unpublished). Being aware of marketplace dynamics and beneficiary intentions can help you make informed funding decisions.
Also note that the Secure Act 2.0 introduced a new planning opportunity for Section 529 plan owners and beneficiaries starting in 2024. Account holders with excess funds in these accounts may have a new option to help beneficiaries fund Roth IRAs. Note that we still await IRS guidance on logistics and reporting details for this strategy, and each state has the final say on whether such a transfer is a “qualified expense.”
7. Review your estate planning documents
Dust off your estate planning documents and confirm your crisis plan is comprehensive and still meets your wishes. In particular, the review should include the “who” of your plan.
- Who’s named as:
- Executor and trustee?
- Financial power of attorney to act on your behalf financially if you can’t?
- Medical durable power of attorney to make medical decisions for you if you can’t?
- If you have minor children, who’s named as their guardian and conservator?
If you’re a business owner, confirm that any existing buy/sell agreements remain appropriate in light of current business and ownership dynamics. This review should also include funding considerations.
8. Take advantage of available estate planning opportunities
If one of your priorities involves transferring wealth to manage estate tax exposure, don’t forget the nontaxable “freebies,” including:
- Annual exclusion gifts, the limit for which is $19,000 per person in 2025.
- Medical expenses, which can be paid without limitation if you pay the medical provider directly.
- Education expenses, which can also be paid with no limit if you issue payment to the institution and not an individual.
9. Consider opportunities to leverage gift tax exemption
Given the results of the 2024 election, many experts anticipate a reduced risk of the estate and gift tax exemption reducing by half in 2026, as is currently scheduled to occur. Regardless, if you’re considering wealth transfer to minimize future tax bills, timing is important, and you may benefit from doing so sooner rather than later.
Those who have transferred all of their allowable exemption in previous years still have another $380,000 per person available this year due to the inflation adjustment for 2025. Check with your advisor.
10. Review your charitable account strategy
Those holding donor-advised funds should check on current balances and determine how much, if any, they want to grant this year. Having a budget in mind helps smooth execution and makes it easier to remember to use these funds throughout the year, as appropriate.
Proactive planning is key
As 2025 kicks off, now’s the time to proactively consider the risks — and the opportunities — to help ensure your personal financial plan remains current and effective whatever the future brings.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.