Don't Forget About Year-End Investment Planning
As the year draws to a close, there might be a slew of tasks
on your to-do list. One task to consider is setting up a meeting with your
financial professional to review your investments. If you take the time to get
organized now, it may help you accomplish your long-term goals more
efficiently. Here are some steps that might help.
Evaluate your investment portfolio
During the meeting with your financial professional, review
how your overall investment portfolio fared over the past year and determine
whether adjustments are needed to keep it on track.
Here are some questions to consider:
- How did your investments perform during the year? Did they
outperform, match, or underperform your expectations?
- What caused your portfolio to perform the way it did? Was
it due to one or multiple factors?
- Were there any consistencies or anomalies compared to past
- Does money need to be redirected in order to pursue your
short-term and long-term goals?
- Is your portfolio adequately diversified, and does your
existing asset allocation still make sense?
Addressing these issues might help you determine whether
your investment strategy needs to change in the coming year.
Aim for balance
During the portfolio review process, look at your current
asset allocation among stocks, bonds, and cash alternatives. You might
determine that one asset class has outperformed the others and now represents a
larger proportion of your portfolio than desired. In this situation, you might
want to rebalance your portfolio.
The process of rebalancing typically involves buying and
selling securities to restore your portfolio to your targeted asset allocation
based on your risk tolerance, investment objectives, and time frame. For
example, you might sell some securities in an overweighted asset class and use
the proceeds to purchase assets in an underweighted asset class; of course,
this could result in a tax liability.
If you own taxable investments that have lost money,
consider selling shares of losing securities before the end of the year to
recognize a tax loss on your tax return. Tax losses, in turn, could be used to
offset any tax gains. When attempting to realize a tax loss, remember the wash
sale rule, which applies when you sell a security at a loss and repurchase the
same security within 30 days of the sale. When this happens, the loss is
disallowed for tax purposes.
If you don't want to sell any of your current investments
but want to change your asset allocation over time, you might adjust future
investment contributions so that more money is directed to the asset class you
want to grow. Once your portfolio's asset allocation reaches your desired
balance, you can revert back to your previous strategy, if desired. Keep in
mind that asset allocation and diversification do not guarantee a profit or
protect against loss; they are methods used to help manage investment risk.
Your financial professional can help you understand how your
investments may be affected by capital gains and other taxes. You can learn
more about current tax laws and rates by visiting
Set goals for the coming year
After your year-end investment review, you might resolve to
increase contributions to an IRA, an employer-sponsored retirement plan, or a
college fund next year. With a fresh perspective on where you stand, you may be
able to make better choices next year, which could potentially benefit your
investment portfolio over the long term.
Note: There is no assurance that working with a
financial professional will improve investment results. All investing involves
risk, including the potential loss of principal, and there can be no guarantee
that any investing strategy will be successful.