Perspective

A year-end checklist for your investments

Even if performing a check-up on your investments isn’t typically on your list of things to do before the end of the year, this is one year you don’t want to skip.

Markets have been unusually volatile and investors may be leery about the year ahead. The 2018 tax year will also mark the first year in which the tax reforms took effect. That means there are several variables and new factors to consider as you close out the year.

Here are some important details to check in on before the end of the year.


Reallocate and rebalance

With the market on a tear for the past nine years, many investors’ portfolios have become stock heavy and may no longer reflect big picture goals, says Samuel Wieser, CEO and investment advisor for Northman Financial.

Asset allocation is a significant driver of portfolio performance, he says, and periodic rebalancing is a critical part of ensuring you are sticking with your investment strategy.

“If your portfolio has a bloated stock allocation, you are likely exposing yourself to excess risk,” Wieser says. “Many experts believe we may see a significant downturn in the economy and stock market in the coming months after the longest bull market in history. If you haven’t rebalanced lately, now would be a great time.”

A common mistake when rebalancing, he says, is to only focus on your IRA or brokerage accounts. Make sure you also look at your 401(k) or any other employer sponsored plan. Usually, the allocations in your account are completely up to you even though there may be a third party investment manager looking after the plan as a whole.

As a guideline for asset allocation, advisers recommend holding equities in the amount of 100 minus your age. So a typical 40 year old will hold 60% in equities. But consider that guideline alongside the fact that Americans are living longer and earning fewer rewards from low-risk investments. Your risk tolerance may be higher.

Harvest your losses to lower your tax bill

Many investments have lost ground over the past several months, so there may be more opportunities than usual to sell investments at a loss and reinvest them in similar (but not identical) investments, says Bill Nelson, founder of Pacesetter Planning.

This process is called “tax loss harvesting.” Your capital losses can offset other investment income you’ve received this year to reduce the taxes you owe come April. If you have more capital losses than gains, up to $3,000 can be deducted against ordinary income.

Harvesting losses also allows investors to reduce their exposure to individual stocks they’ve seen a gain on in the past five to ten years (like Apple, Netflix, Amazon), without taking a big hit from capital gains taxes on those positions.

“You should not let the tax tail wag the dog, but you should consider that capital losses can offset taxable capital gains from investments and reduce your tax bill,” says Lorri Winkcompleck, president of Gap Financial.

Read the full story at CNN. 
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