Monday, July 13, 2020

Five Financial Tips for Year-End

Promoted Partner Content

By Peter C. Thoms, CFA

As the year winds down, there are a few things investors should do to get their finances bundled up for 2019. We’re all busy at this time of year, so this will be a short list of actionable items.

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Many of the things you do to improve your finances may seem small. But remember: over time they compound into a major improvement.

  1. Max Out Retirement Plan Contributions

The easiest money you can make is the tax savings you can generate by contributing the maximum amount possible to tax-deferred retirement plans such as IRAs, 401(k)s or defined benefit plans. Those with high income from self-employment are in a particularly good position to reduce their tax bite. 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.  ake sure you have set up the most advantageous plan for your situation. Click here to see more details on this topic. Call us if you are unsure.

  1. Harvest Losses in Your Taxable Accounts

If you have realized capital losses in any of your investments, you can use them to offset 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.

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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 an unwelcome taxable distribution! In taxable accounts, it is almost always better to buy into funds after they have made their annual distributions and to sell any funds before they make distributions. (Better still, don’t own mutual funds in your taxable accounts at all—use tax-efficient exchange-traded funds (ETFs) instead!)

  1. Know (or Reassess) Your Tolerance for Portfolio Risk

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.  With equity markets having done well of late, many investors are probably quite heavy in their stock allocation. Consider rebalancing your portfolio. Not sure how? Give us a call.

  1. Rebalance Your Portfolio
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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. The end of the year is usually a good time to bring things back into balance.

  1. Resolve to Play the Long Game When it Comes to Investing

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 (or year) 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.

To learn more about how we help clients to secure their financial futures, please visit us at

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