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Money Matters

Joshua Bradburn CFP®
Vice President at Charles Schwab in Santa Monica.

5 Steps for Your Year-End Portfolio Checkup
(Continued from Monthly Columns)

In between your holiday parties and family time, you may want to consider a few steps that could help minimize your tax liability for the current tax year, and position your portfolio for the coming year:

• Rebalance your portfolio: According to Schwab’s Modern Wealth Index, less than 40 percent of investors have rebalanced their portfolio in the last year. Over time, assets that have gained in value will account for more of your portfolio, while those that have declined will account for less. This can leave you exposed to unintended risk if the market environment should suddenly change, turning former “winners” into under-performers.

Rebalancing means selling positions that have become overweight in relation to your target allocation and moving the proceeds to positions that have become underweight. The end of the year is a good time to take a look at your portfolio allocation and make sure it’s aligned to your goals and risk tolerance. This can be especially important for people nearing or in retirement, who might not be able to withstand sudden volatility.

• Consider tax-loss harvesting: Tax-loss harvesting is an under-appreciated investing strategy that investors should consider while rebalancing their portfolios. Investors generally don’t want to sell anything at a loss, but there can be tax benefits if you have capital gains to offset. Tax-loss harvesting can also serve as a motivation to sell underperforming investments or re-diversify overly concentrated stock positions.

• Max out retirement savings (if you can): According to Schwab’s Modern Wealth Index, just 15 percent of investors max out their 401(k) savings. End of year is a good time to evaluate your overall savings and determine if you can bump up what you’re putting away for retirement for the following year. For 2018, the maximum 401(k) contribution will be $18,500. It’s a good idea to take full advantage of your employee retirement plan, at least to the point of any employer match. Also, if you’re over 50, end of year is a good time to start thinking about making some room: you are allowed to contribute an additional $6,000 in catch-up contributions, for a total of $24,000.

• Consider a Health Savings Account (HSA): It’s open enrollment season, and if your employer offers a HSA—and you qualify to contribute to one— it can serve as a stealth retirement savings account in addition to a 401(k) or an IRA. If you’re able to contribute to a HSA and leave it alone, it can be used to cover healthcare expenses in retirement without tapping into other savings.

• Charitable giving: End of year is a time when many people think about charitable giving. As with other aspects of your finances, it’s important for charitable giving to be part of a broader financial plan. Two considerations, particularly for older investors, are the $14,000 charitable gift exclusion that can be contributed to a child or grandchild’s 529 account and donating a portion of your retirement income that you don’t need for living expenses, as you can deduct contributions to qualified organizations.

Joshua Bradburn, CFP®, is a financial consultant at the Charles Schwab branch in Santa Monica. He has over nine years of experience helping clients achieve their financial goals. Follow Josh on Twitter @JoshBradburnCS. Some content provided here has been compiled from previously published articles authored by various parties at Schwab. Charles Schwab & Co., Inc., Member SIPC.

This information is not intended to be a substitute for specific individualized legal or tax advice. Please consult a qualified legal or tax advisor where such advice is necessary or appropriate. Diversification, asset allocation and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. (1217-72UC)



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