A look back, a look ahead: Your year-end financial review guide

Jack Sullivan
Jack Sullivan December 19, 2022

As the year comes to a close, it’s important to take a moment to reflect on your wins and losses. Maybe you got married, sent a kid off to college, or bought a house. And maybe, you didn’t exactly stick to that workout plan you set in January. That’s okay. The end of the year is the time for your annual self-check-in to help you understand where you are and identify areas of improvement for next year. The same goes for your finances. By reviewing your income, expenses, savings, and investments, you can gain valuable insights and make the necessary adjustments for you and your family’s financial goals.

In this guide, we’ll cover:

  • Your year in review 
  • Your investment strategy 
  • Setting up and thinking about fully funding your retirement accounts 
  • Preparing for tax season 
  • Making your non-investment accounts work for you 
  • Consolidating your debt

Your year in review

It can be stressful looking back on your finances in a year plagued by inflation and a bear market. You may have had more losses than wins and maybe you didn’t hit all of your goals. It’s natural to feel anxious or frustrated when the economy is not doing well, but it’s also important to keep your emotions in check so that you can make the best investment decisions going forward. 

Review your income, expenses, savings, and investments over the past year. This will give you a snapshot of your wins and losses. 

Reflect on your 2022 financial snapshot and determine if you need to make changes to your short-term and long-term goals. This could include paying off debt or building a larger emergency fund. 

1. Your investment strategy

Review your portfolio performance over the past year. Consider rebalancing your portfolio to ensure that it’s aligned with your goals and risk tolerance. If you believe the market is going to stay the same or get worse in 2023, you may also want to consider changing your investment strategy.

Five options to consider:

1. Investors can review their allocations and adjust their portfolio targets

One way to respond to a downturn in the market is to adjust your portfolio. This can be a good option for investors who realize that their current investments are riskier than they are comfortable with. To become more conservative, you can consider shifting your assets into safer options such as high-yield savings and checking accounts and pay down any outstanding debt. Typically, a higher-risk portfolio is heavy on equities, whereas a more conservative approach favors bonds. But even within equities, performance this year may indicate that certain companies and sectors are riskier than others. 

2. Investors can invest more and buy the dip

Another way you could respond to a downturn in the market is to possibly invest more money and attempt to take advantage of the dip in prices. This strategy is suitable for investors who are confident in their financial stability and see the dip as a great buying opportunity. You may choose to park your cash in brokerage accounts and automate your contributions to take advantage of the opportunity. 

3. Investors can try and take advantage of the dip by moving positions

This strategy, known as “moving positions,” involves shifting investments to stocks that are likely to benefit when the market recovers. For example, an investor may be able to purchase a stock that is normally too expensive during a dip, allowing them to invest in something they might not be able to under normal circumstances. However, this should only be done after careful research and consideration of factors such as macroeconomic conditions, past performance during downturns, and industry benchmarks. Remember, past performance does not guarantee future results.

4. Investors can cautiously sell

You can consider cautiously selling your investments. This is generally only advisable for a small group of investors who believe that the market will continue to decline and want to hold cash or cash equivalents until the situation improves. Selling can potentially help minimize taxes if the investment is sold at a loss, and it can also protect against potential losses if the investor believes the price will continue to decrease. However, selling also means giving up ownership and the potential for future dividends or capital gains.

5. Investors can do nothing

Investors have the option to take no action at all. This strategy may be suitable for investors who are confident that their portfolio will remain stable despite any short-term fluctuations. This approach is often used by experienced investors who have survived previous market downturns and are confident in their ability to weather any short-term volatility. 

Use financial tools to your advantage

Consider setting up a recurring deposit schedule to automate your investments. Once set up, you’ll have a hands-off investment approach, intelligent and dynamic rebalancing, and a dollar-cost averaging strategy to build your portfolio. 

If you’re an M1 Plus member, you can use Smart Transfers to set threshold-based rules in your M1 accounts. Here are a few ways to get the most out of Smart Transfers: 

  1. M1 Spend overbalance: Set a maximum cash balance for your Spend account and automatically transfer the excess into an Invest account.  
  1. M1 Spend underbalance: Automatically refill your Spend account when it falls under a certain balance. With M1, you can use Smart Transfers to move money from your Borrow account to Spend, or from your Invest account to Spend. 
  1. M1 Invest cash overbalance: Set a maximum cash balance for your Invest account and automatically transfer the excess cash into another one of your M1 accounts. This means any gains over a certain amount are transferred to your Spend account or to another Invest account, like an IRA or a 401k. 

2. Setting up and thinking about fully funding your retirement accounts

When it comes to planning for your retirement, there are several types of retirement accounts to choose from. 401(k) plans, individual retirement accounts (IRAs), and employer-sponsored pension plans each have their own unique features and benefits. It’s important to do your research and choose the one that best fits your needs and goals. 

Think about maxing out your retirement contributions: 

2023 limits

401(k): $22,500, plus an additional $6,500 if you’re 50 or older 

IRA: $6,500, plus $1,000 if you’re 50 or older 

2024 limits

401(k): $23,000, plus an additional $7,500 if you’re 50 or older 

IRA: $7,000, plus $1,000 if you’re 50 or older 

And like your investments, your retirement contributions should be automated as well. 

Also, consider a backdoor Roth IRA. These conversions involve converting a traditional IRA into a Roth IRA. While this move could save you money in the long-run, you will be required to pay taxes on any pre-tax contributions and earnings in your traditional IRA. However, the benefits of a Roth IRA, such as tax-free growth and the ability to withdraw your contributions tax-free in retirement, may outweigh the short-term tax costs of a conversion.

3. Preparing for tax season

Tax-loss harvesting is a strategy that investors can use to reduce the total amount of capital gains taxes due from the sale of profitable investments. M1 has tax minimization built into our algorithm, though it does not automatically do tax-loss harvesting. Tax minimization means that, when selling securities, M1 will do so in order of the lowest tax burden to the highest. Tax-loss harvesting is an investment decision that you can make and implement your strategy on M1’s platform or in consultation with a tax advisor. 

A charitable giving strategy can help you align your values with your giving in addition to maximizing potential tax deductions. It can build legacy, honor a loved one, and support causes important to you and your family. When creating a giving strategy make sure to note your philanthropic goals and financial considerations. Giving strategies can include gifts of cash or appreciated assets, charitable trusts, private foundations, or donor-advised funds. 

4. Making your non-investment accounts work for you

You want all your money working for you – not just your investments. Take a look at your entire financial portfolio and the various accounts you may have. Many big banks offer meager yields in checking and savings accounts. Consider switching. 

Checking accounts

Set up direct deposit in a checking account that pays you. M1 Plus members can enjoy 3% APY* on their deposits and get 1% cashback** on eligible purchases. Our 3% APY is you can earn 75x the national average for a checking account.*** 

Saving accounts

Build a liquid emergency fund in an interest-bearing savings account. Coming soon in 2023, M1 is launching a high yield savings account offering 4.50%. 

5. Consolidating your debt

Consolidating your debt can make it easier to manage your monthly payments. When you have multiple loans or credit card balances, it can be challenging to keep track of all of the different payment due dates and amounts. By consolidating your debt, you can combine all of your outstanding balances into a single monthly payment, making it easier to manage your finances and avoid missing any payments. 

Consolidating your debt can also help save you money in the long run. When you consolidate your debt, you may be able to secure a lower interest rate on your new loan, which can save you money on interest charges over time. In addition, consolidating your debt can help you pay off your outstanding balances faster, which can also save you money on interest charges. 

Another reason to consider consolidating your debt is to improve your credit score. When you have multiple loans and credit card balances, it can be difficult to keep your credit utilization ratio (the amount of credit you’re using compared to the amount of credit available to you) low. This can have a negative impact on your credit score. By consolidating your debt, you can reduce your credit utilization ratio and potentially improve your credit score. 

On M1, we offer two types of loans: 

Margin loan

Consider a portfolio line of credit on your qualifying brokerage accounts. With a margin loan, you can borrow money to invest in additional securities, such as stocks or bonds, with the goal of generating a higher return on your investment. Or you can use the money to pay for big expenses without selling securities – either major planned projects or the unexpected. 

A margin loan can provide you with access to additional funds that you can use to invest in potentially profitable opportunities. This can be especially useful if you have a strong investment strategy but lack the funds to execute it. 

Using a margin loan can potentially increase your returns on investment. By borrowing money to invest, you can potentially generate higher returns than you would be able to achieve with your own funds alone. However, it’s important to keep in mind that using a margin loan also increases your risk, as you are using borrowed money to invest and your losses will be magnified if your investments don’t perform as well as expected. 

A margin loan can provide you with additional flexibility in managing your investment portfolio. By borrowing money, you can potentially take advantage of short-term market opportunities and make investments that you might not be able to make with your own funds alone. 

With M1 Plus, you can borrow up to 40% of an account’s value for as low as 5.75%(subject to Fed meeting change). 

Personal loan

Multi-purpose and fixed rate personal loans are now available to certain clients in Florida, Minnesota, and Illinois and coming soon to more M1 clients. You could use these for expenses such as consolidating credit card debt, financing a home renovation, or paying for a wedding or vacation. Personal loans are unsecured, which means that they are not backed by collateral such as your home or car. 

Personal loans offer fixed interest rates and monthly payments, which can make it easier to budget and plan for your expenses. Unlike credit cards, which often have variable interest rates that can change over time, personal loan interest rates are fixed for the life of the loan, which can provide you with greater predictability and stability. 

You can borrow up to $50,000 at a fixed rate as low as 7.49% APR**** with M1 Plus. 

Your finances on M1

Your personal finances are how you Spend, Invest, and Borrow money, and each one is interconnected. 

On M1, you can have up to five Invest accounts. 

You also have access to some of the best rates and benefits on the market: 

  • Checking Account 
  • High Yield Savings Account (coming soon) 
  • The Owner’s Rewards Card by M1 
  • Margin Loans 
  • Personal Loans
“M1 is focused on building a holistic, smart platform that encourages and enables you to practice good financial habits.” 
– Brian Barnes, CEO of M1

Happy New Year!

*Obtaining stated APY (annual percentage yield) or opening an account does not require a minimum account balance. Stated APY is valid from date of account opening. Account fees may reduce earnings. Variable APY rate subject to paid M1 Plus subscription. Stated APY (annual percentage yield) for M1 Savings accounts is subject to change prior to product launch due to changing federal funds rate. 

**Debit card purchases are when the card is swiped, or its 16-digit number is entered online. Any fund transfers, including via card transactions such as P2P or third party processors, are not eligible for cash back. 

***No minimum balance to open account or to obtain APY (annual percentage yield). APY valid from account opening. Fees may reduce earnings. Rates may vary. National average is 0.04% APY as of September, 2022. Obtained from the FDIC. 

****Lowest fixed rates available to M1 Plus members only, subject to credit history, income, term of loan, and other factors. Rates are not guaranteed and are subject to change. Not all applicants qualify for the lowest available rate. 

M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Past performance does not guarantee future performance. 

M1 is a technology company offering a range of financial products and services. “M1” refers to M1 Holdings Inc., and its wholly-owned, separate affiliates M1 Finance LLC, M1 Spend LLC, and M1 Digital LLC. M1 Plus is a paid annual membership that confers benefits for products and services offered by M1 Finance LLC, M1 Spend LLC and M1 Digital LLC, each a separate, affiliated, and wholly-owned operating subsidiary of M1 Holdings Inc. “M1” refers to M1 Holdings Inc., and its affiliates. All investing involves risk, including the risk of losing the money you invest. Borrowing on margin can add to these risks, and you should review the margin account risk disclosures before borrowing. M1 Margin Loans are available on margin accounts with at least $2,000 invested per account. Not all securities are available for M1 Margin Loans and the amount that may be borrowed against a security is subject to change without notice. Available margin amount(s) of M1 Margin Loans may require greater than $2,000 per Brokerage Account. Not available for Retirement or Custodial accounts. Margin rates may vary. Brokerage products and services are offered by M1 Finance LLC, Member FINRA / SIPC, and a wholly owned subsidiary of M1 Holdings, Inc. 

M1 Spend is a wholly-owned operating subsidiary of M1 Holdings Inc. M1 is not a bank. M1 Savings Accounts are furnished by B2 Bank, NA, Member FDIC. 

M1 Personal Loans are furnished by B2 Bank, NA, Member FDIC and Equal Opportunity Lender.  

M1 Spend is a wholly-owned operating subsidiary of M1 Holdings Inc. M1 is not a bank. M1 Checking Accounts furnished by Lincoln Savings Bank, Member FDIC. M1 Visa® Debit Card is issued by Lincoln Savings Bank, Member FDIC. 

Credit Card not available for US Territory Residents. The Owner’s Rewards Card by M1 is Powered by Deserve and issued by Celtic Bank, a Utah-Chartered Industrial Bank, Member FDIC. Review Cardholder Agreement and Rewards Terms for important information about the Owner’s Rewards Card by M1. 

M1 is not a bank. Personal Loans and Savings Accounts furnished by B2 Bank NA, Member FDIC and Equal Opportunity Lender