While taxes have just been submitted, it is already time for your mid-year portfolio checkup. Before summertime is underway, review your investments to ensure that you are set up for the maximum performance for the year. From rebalancing the portfolio to considering tax implications, right now is the best time to make sure your finances are in order.
The best time to prepare for taxes is in the present. Right now, investors can make sure that they are booking losses and preparing for tax breaks. With the rise in the stock market over the last few years, investors are more likely to be gaining profits from their portfolio. To offset those gains, you need to book losses now. When the stock market is up, gold and precious metal-related investments tend to drop. These areas are key places for investors to record losses and take advantage of available tax breaks.
Investors should keep in mind that the Internal Revenue Services has a wash-sales rule. Investors are not allowed to buy the same or essentially the same investment within 30 days of selling it if they want to claim a loss. To avoid this rule, investors can sell an individual stock and buy an index fund that includes the same asset. For example, investors could sell a housing stock for a loss and buy an ETF that covers the industry.
Boosting your savings account is a key way to prepare for retirement, but it is not always enough. When you retire, you will have hours of extra time to fill with hobbies, traveling or other pastimes. All of these hobbies cost money, so it is important to plan for extra costs in your retirement plan. Right now, begin by reviewing your current lifestyle. Consider which costs will remain the same, increase or decrease following retirement. If you will not be able to save enough for your ideal retirement lifestyle, begin adding additional money to your portfolio every month.
You may also want to review your current lifestyle. As your needs, income and financial goals change, you should regularly review your lifestyle budget. With retirement drawing closer, now is the best time to adjust your lifestyle and add new funds to your savings account. Cutting out unnecessary expenses and putting the money in your portfolio or 401(k) can boost your retirement account. In addition, money placed in your 401(k) now reduces your tax liability for the next tax season.
Matching Risks and Rewards to Individual Tolerance
A young investor can place their money in riskier stocks and bonds. They have the time for the portfolio to balance out before they retire, so a young investor is able to take more risks. As you approach retirement age, you will want to rebalance your portfolio for fewer risks and safer investments. A financial adviser can help you to adjust your current risk tolerance to your portfolio for the best investment strategies.
Once you know your individual risk tolerance, it is time to rebalance your portfolio. As a rule, your portfolio should be rebalanced at least once a year. Having a wide array of asset types in your portfolio helps to lower the risk of your entire portfolio taking a nosedive. How you actually rebalance your portfolio will depend on what you want, your tax considerations and the transaction costs.
Initially, begin by recording the total cost of each security within your portfolio. Tracking the historical data will help you compare current and future values later on. Each time you need to rebalance, review the value of your portfolio and each asset class. You will also want to make sure that your portfolio still has your targeted blend of stocks, bonds and other assets. If your goal is to have a portfolio comprised of 60 percent stocks, you may have to buy additional stocks during bear markets. Once you have calculated the way your portfolio is weighted, you can begin to make adjustments.