5 Critical Steps Every Investor Should Take Before the New Year


It’s almost the New Year, which means it’s time for champagne, countdowns, and ... checking out your finances.

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To help your investments reach their full potential, now is the time to review your 2013 investment portfolio performance and do some financial planning for the year ahead. Here’s how:

Step No. 1: Take a “Location Inventory”

Many of us have our investments and savings scattered across multiple accounts: 401(k)s, IRAs, 529 accounts, regular savings accounts ... the list goes on.

Identify and evaluate your accounts to make sure you are using them to their full capacity. Are you making the most of your 401(k) and other tax-advantaged plans? Do you have a pile of cash sitting idly in a savings account earning next-to-nothing in interest?

Consider whether your savings are allocated correctly among your different accounts – not only from a tax perspective but also to ensure they align with your long-term goals. Smart location choices can translate into better, more efficient asset performance.

Step No. 2: Do a Fee Comparison

Unfortunately, many of us ignore one of the most important determinants of investment performance: fees and expenses.

Take the time to know what you’re paying your broker and determine if there are any miscellaneous fees tucked into some corner of your monthly bank statement or quarterly investment report.  Are your funds charging reasonable management fees?

You’d be surprised how quickly these fees add up. A little here, a little there, translates to a sizeable loss in long-term compounding gains.

Step No. 3: Review Your Allocation

The end of the year is a great time to review your asset allocation and rebalance, if necessary.

You should be invested in a handful of different equity, fixed income and alternative asset classes based on your financial goals, timeline and risk tolerance. Your allocation should change gradually as you move through different lifecycle phases, from more growth-oriented investments when you’re young to income-advantaged assets as you approach retirement. And you should rebalance your portfolio periodically – at least once a year – to realign your weights with your target allocation.

Step No. 4: Get Taxes Ready

Before the New Year’s Eve countdown, optimize your portfolio around your tax situation.

If you have tax losses in your portfolio, it may be advantageous to actualize these losses (turn paper losses into real losses) for the sake of reducing next year’s tax burden.

Alternatively, if you have a lighter-than-usual tax burden coming up, it may be a good idea to realize gains on any assets you’ve been planning on withdrawing.

Tax policy shouldn’t drive your investment decisions, but you can make smart decisions that are in line with your strategy that can help you pay no more taxes than necessary.

Step No. 5: Plan Ahead for the New Year

Make one of your New Year’s resolutions to take better care of your investments by planning specific dates to rebalance your portfolio.

Also think about any big-ticket items coming up in the next 12 months. Do you anticipate any major lifestyle changes, liquidity events or anything else that could impact your financial situation? How prepared are you? What steps do you need to take between now and then?

As we head full-steam into the holiday season, invest a little time in some year-end financial planning. It can pay big dividends in the years to come.

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