Portfolio Adjustments to Consider Before Year-End

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Provided by Whitlock Wealth Management

As the end of the year approaches, it’s a good time to closely study your investment portfolio and determine if any changes are appropriate. Keep in mind that some changes may need to be implemented by Dec. 31 to avoid negative tax implications – which is all the more reason to get started today.

Here are four steps to consider as you assess your portfolio:

#1 – Review and rebalance

It’s beneficial to review the performance of investments in your portfolio. While it may be tough to see a decline in value this year in light of rocky markets, remember to consider the longer-term picture and how your investments have performed over 5, 10 or more years. Chances are, if you’ve been invested during those periods, you’ve seen significant growth in your assets despite the shorter-term ups and downs.

Next, compare your current asset allocation to how it looked when you first invested in the current asset mix. If any positions have changed in value by 5% or more from their original allocation, you may want to rebalance those holdings. You can put more money to work in assets that are now underrepresented compared to your initial allocation and reduce your holdings of those that have grown by 5% or more, back to their original position. This helps you maintain a consistent investment strategy over time that is aligned to your current risk profile.

#2 – “Harvest” capital losses

If you hold investments in taxable accounts, look at how they have performed this year. You may determine that some positions are no longer appropriate for your portfolio. Choosing to sell positions that have lost ground is referred to as “harvesting” losses. You can use those losses to offset capital gains (or capital gain distributions from mutual funds) you’ve realized during the year on other investments. Your tax advisor can help decide whether you should look for short-term or long-term losses that could result in tax savings on your 2022 return.

Before you make changes, think about whether you are comfortable eliminating the position from your portfolio, at least for a period of time. You must be careful of wash sale rules. For example, if you sell shares at a loss, and purchase substantially identical shares 30 days before or after the sale your tax loss will be disallowed. Reminder, if you sell shares in your taxable account and buy substantially identical shares in your IRA within 30 days, the wash sale rule applies. Be sure to check with a financial advisor and tax professional about how these rules might affect your buy-and-sell decisions.

#3 – Consider gifts of stock to claim a deduction

If you do plan to reduce or eliminate a stock or mutual fund position that has appreciated in your portfolio that you’ve held for more than one year, consider gifting it to a favored non-profit organization before year’s end. In doing so, you could avoid having to pay tax on the capital gain. People who itemize their deductions can also claim a tax deduction on their 2022 return based on the fair market value of the stock at the time the gift is made. Be sure to check with your financial institution to see if there is a deadline for them to complete the transaction by the end of the year.

#4 – Prepare for mutual fund capital gain distributions

No matter how mutual funds held in taxable accounts perform, funds may generate realized gains from selling underlying positions in 2022. Even if you reinvest all earnings into additional shares, you will be subject to taxation on any capital gain distributions made by the fund. Mutual fund companies should provide you with an estimate of those payouts before the end of the year so you can assess the potential tax impact.

Talk to your advisor

It always makes sense to do a year-end review with your financial advisor. This allows you to discuss your comprehensive financial plan and consider adjustments that could be beneficial in 2023 and beyond.

Bennett C. Whitlock III, CRPC®, is a Private Wealth Advisor and CEO with Whitlock Wealth Management, a private wealth advisory practice with Ameriprise Financial Services, LLC. He specializes in fee-based financial planning and asset management strategies and has been in practice for 28 years. To contact him visit whitlockwealth.com, call 877-WHITLOCK or email whitlockwealthmanagement@ampf.com. Offices are located at 12848 Harbor Dr, Ste 101, Lake Ridge, VA 22192 and in Downtown Historic Manassas at 9073 Center Street, Manassas VA 20110.

Ameriprise Financial and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser. This information is being provided only as a general source of information and is not a solicitation to buy or sell any securities, accounts or strategies mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as a recommendation or advice designed to meet the particular needs of an individual investor. Please seek the advice of a financial advisor regarding your particular financial situation.

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. Ameriprise Financial Services, LLC. Member FINRA and SIPC.


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