End of the year is a great time, but especially as markets hit new highs!
The end of the year is an ideal time to review your investment portfolio for several reasons, particularly when stock markets are reaching new highs. As markets climb, the value of individual assets in your portfolio may shift, potentially upsetting the balance of your asset allocation. For instance, equities may now comprise a larger percentage of your portfolio than intended, increasing your overall risk exposure.
Reassessing your portfolio ensures it aligns with your original investment goals and risk tolerance, helping to maintain a strategy suited to your financial objectives.
Tax Reasons
Tax considerations make year-end an especially strategic time for portfolio adjustments. Reviewing your investments allows you to identify opportunities for tax-loss harvesting, which can offset capital gains and reduce your taxable income. Conversely, if you've realized significant gains during the year, it might be an opportune moment to allocate funds into tax-advantaged accounts or charitable contributions. Your advisor can work with you on a capital gains strategy that fits your individual situation.
Additionally, as the year draws to a close, you can consider how any new tax legislation or personal financial changes, such as increased income, might impact your strategy going forward.
Review Your Life Changes
Another critical reason to review your portfolio at year-end is to ensure your investments align with any changes in your life circumstances or financial goals. Whether you've experienced a major life event – such as a career change, marriage, or the birth of a child – or simply revised your long-term plans, these factors should influence your investment strategy. For example, nearing retirement might prompt a shift toward more conservative assets to preserve wealth and reduce volatility. Regular reviews help you stay proactive in adapting your portfolio to life's inevitable changes. Great communication with your advisor facilitates successful outcomes for your financial plans.
Plan for the Year Ahead
Finally, the end of the year provides a natural opportunity to set financial goals for the year ahead. Reviewing your portfolio allows you to evaluate its performance against your expectations and benchmarks. Were your returns in line with your risk tolerance and market conditions? Did specific investments outperform or underperform, and why? This reflection not only informs potential adjustments but also reinforces disciplined investing habits. By ensuring your portfolio is well-positioned at the year's end, you can enter the new year with confidence, ready to seize future opportunities while managing risks effectively.
"Ideal Time to Review Your Investment Portfolio." FMeX. 2024.
