The end of the year is a great time to take stock of your stocks, says Laura Cole, senior lecturer and the director of the Masters Investment Learning Center in UT’s Haslam College of Business.
Here are four key strategies that Cole, who spent 15 years managing funds for middle-class investors, advises for year’s end to benefit your wallet in the new year:
Rebalance Your Portfolio
If you haven’t examined your portfolio in a while, you may find that some stocks have significantly increased in value—and that isn’t always positive for investors.
“If your other stocks are overdominated by ones that grew significantly, your portfolio carries much more risk,” Cole says.
Overweighted stocks also can skew the performance of your full portfolio, meaning that you miss the chance to recognize larger gains developing or to sell stocks that are losing.
Harvest Your Tax Losses
Selling stocks that are performing poorly can mean gains come tax time. Cole notes that many investors are afraid to sell poor performers because it means accepting a loss.
“We call it chasing the loss,” she says, “And it’s highly common for the average investor.”
Cole recommends taking emotions out of the equation and reframing the sale mentally. Pruning your portfolio of lagging stocks allows room for greater growth, and selling at a loss before December 31 means a tax win in April.
Give (Tax-Free) Until it Hurts
It’s the season of giving, and making substantial financial gifts is another way to decrease your tax burden in 2018. Most Americans already take advantage of the tax benefits of contributing to 501(c)(3) charities, but Cole advises maximizing your contribution before December 31 to increase your tax benefit.
Contributions to a 529 college education savings account also merit tax deductions. While they might not generate as much excitement as a new toy, they are a gift that will truly enrich a child’s future.
Use Year-End Bonuses to Pad Your Portfolio
In many offices the year-end bonus has come to be expected, but traditionally they were a surprise financial boon. If you plan your holiday shopping and celebrating as if you aren’t going to receive a bonus, you can begin the new year by planting a financial seed in your portfolio or padding your retirement fund. Even if you invest part of your bonus, you’ll be starting off the year ahead. By this time next year, you’ll have another potential financial boon in the investment’s growth.
Katie Williams (865-974-3589, firstname.lastname@example.org)
Laura Cole (865-974-1715, email@example.com)