5 Tips for Portfolio Efficiency Before Year End

By Aradhana Kejriwal   |   December 10, 2013

As we enter the home stretch of 2013, there is still time for investors to make some portfolio adjustments that could create greater efficiency, generate tax savings, and position your portfolio for the coming year.  Here are five tips to consider before the year ends to create a more efficient portfolio.

1)      Harvest Tax Losses:  If you own assets that have experienced losses, consider harvesting those tax losses by selling those investments before year end to reduce your 2013 tax liability.  If you have embedded gains in investments that you want to eliminate from your portfolio and you expect to have a light tax burden this year, you might want to consider selling those assets now as well.  With the stock market up significantly, most investors have gains in their portfolios; harvesting tax losses may offset some of those gains and make your portfolio more efficient.  Pay careful attention to the 30-day “wash rule” that applies to reinvesting the proceeds and consult your tax professional regarding your specific situation and any existing tax loss carryforward before you act.

2)      Review Capital Gains Distributions:  Consider reviewing the capital gains distributions of your portfolio holdings. If the distributions are unusually high compared to the return on the holding, based on your specific situation, you could sell out of the holding in advance of the distribution. Typically, capitals gains distributions occur towards the end of the calendar year. Avoiding the unnecessary taxes from these distributions could be an effective tax reduction strategy.

3)      Rebalance Your Portfolio:  Just as a disciplined car maintenance helps avoid trouble on the road and improves car efficiency, disciplined rebalancing can improve portfolio performance over the long term. December is a great time to rebalance your portfolio, especially since you can simultaneously harvest any tax losses and lock in gains.  Depending on your portfolio and your tax situation, you and your tax advisor might decide that it makes more sense to delay rebalancing until early in the next tax year. Either way, set a date and have a plan for systematic rebalancing.

4)      Give Securities, Not Cash:  With the holiday gift-giving season upon us, this is a great time of the year to consider making charitable and/or personal gifts using low cost basis securities instead of cash.  That way, you can pass along the full value of the gifted securities and avoid paying the taxes that would otherwise be due on sale.  Consult your tax professional about federal gift tax limits and consider your own financial and tax situation before you act.

5)      Review Your Target Asset AllocationWhile being tax-sensitive is an important part of investing, taxes are only one piece of the puzzle.  Year-end is a good time to review your portfolio to ensure that your asset allocation is designed with your current life priorities and financial needs in mind. A good financial advisor should be able to help you identify your life priorities and goals and create a portfolio designed to help you live the life you desire.

Disciplined investment habits can lead to long-term financial success.  A little time spent in year-end portfolio review this season could be time well spent.

Wishing you a very happy holiday season!

Aradhana Kejriwal

About the Author

Aradhana Kejriwal, CFA®, is JOYN's Chief Investment Officer and co-chairs the Investment Committee, which formulates and implements the firm's investment philosophy, strategies, processes and procedures. With 19 years of investment experience, she's a popular industry writer and speaker.

Read More By Aradhana Kejriwal >>

Join Us

When wealth advisors look and sound the same, how do you choose? A coin flip? Pick your neighbor? Why leave such an important decision to chance? Instead, join us at an upcoming workshop. Hear recent research, discover new insights, and experience JOYN’s transparency and expertise firsthand.

Get In Touch