request info email to friend
Year-End Planning for Your Portfolio
Certainly December is a busy time of year. But amid the shopping and the hosting and the parties, don’t forget to carve out time for a year-end look at your investment portfolio.
First, consider the performance of your portfolio. Has it performed as you expected? Is it still helping you achieve the goals for which you are investing? Have those goals changed? And are you satisfied with the balance between risk and return?
A key part of any investment strategy is tax planning. While tax issues should not be all that directs your investment approach, there might be things you can do to ease your tax burden. For example, if you plan to sell investments that have unrealized losses, you might want to sell them before the end of the year, especially if you need to offset gains from other investments.
If you are planning to sell investments with gains, you might consider waiting until after Dec. 31, so the gains won’t be taxable until 2017. This might be particularly advantageous if lower tax rates – championed by both President-elect Trump and the Republican majority – actually get through Congress next year.
Do you have mutual funds that make distributions toward the end of the year? Those distributions usually have tax consequences, which can vary. You should weigh the tax from the distribution against the tax you might owe from the sale. If you plan to sell those funds, it might make sense to sell before the funds make their distributions. Or you may want to sell the funds prior to the distribution and invest the proceeds in a similar fund without an upcoming distribution. Some people sell mutual funds to avoid distribution and repurchase the funds the next day. If you are selling an investment with an unrealized loss, be wary of wash sale rules. Wash sales disallow losses if you re-purchase the same or substantially similar investment within 30 days.
If you are concerned about your tax burden, there are tax-advantaged investments you could add to your portfolio. Some of these include oil and gas partnerships, tax-exempt bonds, and REITs (Real Estate Investment Trusts). Also, life insurance products can provide certain tax advantages.
It is important to note that tax considerations are just part of your total investment picture. You should build a diversified investment portfolio that will help you meet your long-term goals. Obviously you don’t want to pay more in taxes than you have to. But you also don’t want to sacrifice diversification or significant growth potential in order to shave your tax bill.
Consider making a charitable contribution prior to year-end. The contribution may be deductible from ordinary income taxes. If tax rates decline next year, a future contribution will not be as beneficial as in 2016.
Finally, remember to take a Required Minimum Distribution (RMD) from your qualified retirement plan, if the RMD applies to you. Generally, you must start taking RMDs from most plans when you reach age 70½.
Here at The Bensman Group, we are happy to talk with you about your investment portfolio and strategy, including the tax consequences of the investments you hold. You can contact us at firstname.lastname@example.org or 847-572-0808.