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An Investor’s Year-End Checklist

Once again, year-end is just around the corner. That means, despite many other demands, it’s time to wind down this year’s investment activity and prepare for next year.

You may want to:

  • Maximize tax-related options.
  • Review your portfolio against objectives and for diversification.
  • Keep on top of administrative tasks.

Since some of these are time sensitive with a December 31 deadline, we’ll review them based on urgency.

Most tax-related activities have to be completed by year-end, so plan accordingly. That includes scheduling time to consult with your investment advisor or tax professional. This step is recommended for all investors before moving ahead with any tax-driven strategies or actions.

  • Review your portfolio for any losses so that you can consider whether tax-loss harvesting is to your benefit. The deliberate sale of investments to generate losses that offset gains realized during the year is a long-standing strategy that may reduce your tax burden.
  • Check to be sure your IRA and 401(k) contribution amounts are properly sized to fit your retirement objectives and maximize those contributions if you can.
  • Evaluate whether you are adequately utilizing pre-tax income to fund flexible spending and/or health savings accounts.
  • If you have flexible spending or health savings accounts set up for 2022, make sure to spend those funds so that you realize the planned benefits.
  • Look at your tax withholdings to see whether any changes in dependents, income, or marital status necessitate changes. And, if necessary, pay estimated taxes by January 17, 2023.

Review your portfolio

Understand the current balance of your portfolio so you can be alert to possible opportunities and consider whether any rebalancing is needed. Before year-end, as part of maximizing your tax-related options, you may find it’s time for targeted portfolio restructuring and rebalancing. These questions can help you get started:

  • What is your current asset mix?
  • What asset classes are your current contributions to pre-tax retirement or spending accounts going into? Regardless of whether your contributions stay the same or change, is the allocation/proportion still right for your individual situation and goals?
  • Are your asset class allocations balanced across your various contributions and your portfolio as a whole? Is there an opportunity to direct some funds towards other, targeted asset classes?
  • If you decide to harvest tax losses, where should you reinvest those cash proceeds and how will that additional investment affect your current asset mix?
  • Are there any new asset classes that could be added to your portfolio to address gaps or improve diversification?

These questions are timely at year-end but remain pertinent throughout the year. Each time you take action with your investments, take a moment to look at the forest as well as the trees.

Handle administrative tasks

While no less important, administrative tasks may be less subject to a ticking clock. Understand any deadlines so you don’t miss them. Then, if you can’t get everything else done, tackle the remainder early in the new year to start off.

  • Re-confirm your account beneficiaries.
  • Update account information for any changes in address or other pertinent contact information changes.
  • Check credit reports and scores.
  • Examine insurance policies to make any necessary updates or changes.

If anything changes during the year – with your job, location, family, or financial circumstances – be sure to make adjustments as necessary.

A word about diversification

In volatile markets, diversification can make the difference. Since one asset class may perform better while another experiences a downturn, diversification can smooth out market ups and downs and help investors realize returns. We encourage you to work with your investment advisor and use year-end evaluation and adjustments to consider the potential benefits of adding alternative investments into your portfolio mix.

Alternatives, including private credit, can have less correlation to other asset classes – meaning that their performance does not necessarily rise and fall in the same cadence.

In reviewing your contributions and allocations, or as you reinvest any funds realized through tax-loss harvesting, you may find space within your portfolio to diversify and rebalance by adding private credit and other alternative investments. With equity and fixed income performance more aligned than they have been in decades, the search for yield may be grounded in diversification.

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