5 Ways to Start the New Year on the Right Foot

The New Year is just around the corner, which makes it the perfect time to do a bit of portfolio housekeeping. By investing a little bit of time now, you can enhance your tax situation, save some money, and set yourself up for a smoother ride down the road. Break out the hot chocolate and take these five easy steps to help you get off to a great start in 2016.

1. Get rid of the losersWe investors have a natural tendency to hang on to losing stocks long past their expiration date. Even if a stock's value declined long ago -- with no signs of a reversal -- it can be difficult to admit it wasn't a good investment and simply cut your losses. Nobody likes to lock in losses and admit to a poor investment, so we keep those stocks in our portfolios and ignore them.

However, doing nothing won't help your portfolio or your finances. Sell the losers and take the tax loss. This will help offset any gains you realized from other investments, and it can also reduce your taxable earned income. Known as a "tax loss sale," selling your losing stocks allows you to mitigate your capital losses with some tax savings.

2. Eliminate duplicatesWhile investigating which stocks need to go, take a few minutes to check your accounts for duplicates. This might come in the form of two accounts that have the same end goal (two separate IRAs, for example) or more than one mutual fund investing in the exact same thing. This is far more common than you may realize, so don't be surprised if you find something. Duplicates make it easier to lose track of your strategy or allocation, and they also make it easier to spend more money than you should.

When you have more than one account serving the same function, see if you can't combine them into a single one with your cheapest custodian. Similarly, cull your mutual funds and other investment vehicles so that you're not paying two different managers to carry out the same exact strategy. The key is to focus aggressively on picking the single cheapest option. This will have an immediate effect on the fees you pay (making it easier to outperform) and will also simplify your life so that it's easier to keep track of how your portfolio is doing.

3. Avoid lifestyle inflationMany people get raises in January, so now is the perfect time to put in a request to raise your 401(k) deduction. If you do so before your raise kicks in, then you'll never see the extra money you're making -- which means you'll never miss it.

Think of the alternative. If you get a raise and spend the extra money for a few months, it will be a lot more painful to raise your 401(k) contributions. Suddenly, that extra padding you had in your budget is no longer there.

4. Don't forget to open an IRAWhether you've already maxed out your 401(k) or are saving for the first time, an IRA is a superb account to build tax-advantaged savings for retirement. It's especially important for those who work outside of the 9-to-5 workplace -- namely, freelancers, stay-at-home parents, or small-business owners.

If you don't already have an IRA in place, take the time out to at least open the account. You can always work out your contributions later, but at least you'll have a head start and a place to send your savings.

5. Update all your informationSince you're probably looking at your financial and estate planning information ahead of tax day, now is the perfect time to make sure your information is up to date. Check your beneficiary designations, contact information, and other pertinent details. This is especially critical if you've had a major life change this year. You might need to add a new child to your trust, update your will for a change in your wishes, or make sure your insurance policies and lists of accounts are updated and filed in a place where a loved one can find them.

These aren't the most pleasant things to think about, but if anything should go wrong in 2016 you'll want your family to be protected and prepared. These are small actions that can yield benefits over the long run, just like most of our financial planning activities. Cleaning up your investment accounts for the New Year is neither difficult nor time-consuming, but it can prove an incredible gift for both your family and your future.

The article 5 Ways to Start the New Year on the Right Foot originally appeared on Fool.com.

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