Time flies.
It’s already the end of the year. And you’re facing some important deadlines.
That’s right: Deadlines.
After December 31 at midnight, the game changes. It will be too late to make certain moves.
Those moves could save you thousands.
Don’t let this be the most expensive procrastination that you’ve ever endured. Jump at the chance to review your portfolio before the clock strikes midnight.
Here are some tips for an efficient portfolio review process.
#1: Identify Tax Harvesting Opportunities
Want to pay fewer taxes? Of course. We all do.
If you have tax losses in your portfolio, you may decide to harvest these. This could help reduce your burden next April 15.
Alternatively, you may realize that you have a lighter-than-usual tax burden coming up. That could make it a good idea to realize gains on any assets you want to dispose of.
Either way, you’ll want to make a decision before the end of the year.
Tax policy shouldn’t drive your investment decisions. Don’t let the tail wag the dog, we say. But you can make strategic decisions that help you pay no more taxes than necessary.
After all, tax-loss harvesting can get weaved into your asset allocation strategy.
Which leads us to our next point …
#2: Review Your Portfolio’s Asset Allocation
Your ideal asset allocation should not change dramatically from year to year, but it will change as you move through different stages in your life.
Have you adjusted your asset allocation based on changes in your life? If you and your spouse set a goal of retiring 8 years earlier than you’d previously planned, have you reallocated accordingly?
When was the last time you made a major portfolio shift – for example, buying more higher-dividend stocks or reweighting riskier asset classes like emerging markets?
Again, these should not be drastic changes, but rather smaller incremental shifts every few years or so.
#3: Identify Any Red Flags
Hopefully you don’t leave your quarterly statement unopened when it arrives in the mail. (Do you?)
You need to periodically check the figures to make sure nothing is amiss. Unfortunately, surprises happen. Fund managers can chronically underperform, or you may be exposed to a highly volatile asset class that has underperformed recently.
These red flags are not necessarily calls for urgent action. Underperforming assets have a habit of reverting to the mean. But knowledge is power, and if something is truly amiss it’s better to identify the issue.
Furthermore, a severely underperforming asset can throw off your overall asset allocation. You need to take proactive steps to regain balance. Services like Jemstep’s Portfolio Manager can issue you up-to-date asset allocation advice based on your current portfolio performance.
#4: Do a Location Check
Are your assets located where they should be? If you’re saving for retirement you want to be making the fullest use possible of your company’s 401(k) plan as well as other tax-advantaged vehicles like IRAs. Likewise if you’re saving for educational expenses then a 529 plan is probably a good location for these assets.
Location is important – the after-tax benefits can be a great help in getting you to your goals. Services like Jemstep’s Portfolio Manager take your asset location into consideration when they recommend which of your accounts should hold various assets within your portfolio.
If you have a variety of tax-deferred, tax-exempt and taxable accounts, for example, Portfolio Manager will give you specific buy-and-sell information for each account, weighing the tax implications into its decision-making. It will coordinate this asset location information with your overall asset allocation strategy, to make sure you get customized, high-caliber advice.
#5: Set a Rebalancing Date
You need to rebalance your portfolio at least on an annual basis. December is a great time to do this, if you want to harvest any losses or lock in any gains.
Alternately, you might decide that early in the New Year is better for your tax situation. Either way, set a date.
Services like Jemstep’s Portfolio Manager can send you periodic rebalancing alerts. It will also tell you, specifically, exactly what you should buy, sell and hold while you rebalance.
#6: Make Portfolio Performance Review a Habit
Are there things that you know you should be doing, but that you put off?
Yes, us too. We understand.
For most people, portfolio performance review falls into this category. People find it easy to put off… and off… and off.
One of the best ways to stop procrastinating is to make it a habit. Just like spring cleaning, fall planning can become a seasonal habit. Set aside a targeted day for it – for example “first Saturday in November” or “the day after Halloween.”
Give yourself an incentive by planning a special treat for when you finish, like dinner and a movie with your spouse.
Good investment habits can lead to long-term financial success. A little time spent in year-end portfolio performance review this fall could be time well spent.
Do you have a schedule for year-end portfolio performance review?
Want personalized, high-caliber investment advice? Sign up for Jemstep’s Portfolio Manager.
This service will give you specific buy-and-sell recommendations that’s custom-tailored to your age, goals, risk tolerance, tax considerations and other important factors. Sign up today!