Wednesday, July 8, 2020

Year-End Investment Plan Checklist

By Peter C. Thoms, CFA

As the end of year approaches, there are several things investors should do to ensure they are putting themselves on the best possible financial footing for 2016.

  1. Max Out Your Retirement Plan Contributions
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The easiest money you will make in 2015 is the tax savings you will generate by contributing the maximum amount possible to tax-deferred retirement plans such as IRAs and 401(k)s. Those with high income from self-employment are in a particularly good situation to reduce their tax bill. Individual 401(k)s, SEP-IRAs and Defined Benefit Plans (and the high tax-deductible contributions that go with them) may all be fair game for the self-employed. Make sure you have set up the most advantageous plan for your situation. Click here to see more details on this topic.

  1. Realize losses in your taxable accounts

If you have realized capital losses in any of your investments, you can use them to offset any realized capital gains. If your realized losses exceed your realized gains by $3,000 or more, you can offset $3,000 of your taxable income with your capital loss. Any realized losses above $3,000 can be carried over to successive tax years. In general, if you must realize capital gains, try to make them long-term gains, which are taxed at a lower rate than short-term gains.

Also, be strategic about when you buy or sell mutual funds in taxable accounts late in the year. Typically, most funds make their capital gains distributions in the last few months of the year. Be careful not to buy into a fund that is just about to make distributions—as you will receive taxable distributions that did you no good whatsoever! In taxable accounts it is usually better to buy into funds after they have made their annual distributions and to sell any funds before they make distributions.

  1. Know (or Reassess) Your Tolerance for Portfolio Risk
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Knowing how much investment risk you can comfortably withstand is critical, and can help you from making very damaging decisions when the markets take their occasional tumble. We employ a method of measuring risk tolerance based on dollar values. You can take our two-minute survey here to find out your personal Risk Number. Once you know your Risk Number, you should measure whether your portfolio is truly reflective of your risk tolerance. Many people will find that the risks lurking in their portfolios are actually much higher than they expect. Knowing your Risk Number and matching your portfolio’s Risk Number to it is a great way to help you stay the course through the inevitable bouts of market turmoil. Feel free to contact us directly if you would like us to assist you in finding our your Risk Number.

  1. Have a Rebalancing Plan (and stick to it)

Periodically rebalancing your portfolio to its target asset class weightings can make the process of “buying low and selling high” systematic and unemotional. Emotionally, it is easier to add to whatever asset class has recently done well and to sell that which has done poorly. In the long run, however, it is better to add to worthy assets classes that have become cheap and to reduce exposure to asset classes that have become relatively expensive. Regular rebalancing will also help to prevent you from becoming over-exposed to any particular asset class.  Read more about rebalancing here.

  1. Resolve to Play the Long Game When it Comes to Investing
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Most people are investing today to build a retirement nest egg that will be tapped decades in the future. Thus, worrying whether the stock or bond market was up or down this week or month is unproductive. Market pullbacks should be seen as opportunities to add to investments when they are temporarily cheaper, not as reasons to sell. Knowing your risk tolerance and having a long-term focus do wonders for helping you rest easier today. Read more about this topic here.

To learn more about how we manage client portfolios, please visit us at

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