Year-End Portfolio Management: Making a List and Checking It Twice

By Aradhana Kejriwal   |   December 15, 2014

As we enter the home stretch of 2014, 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 items to consider doing before the year ends that could ultimately add to your long-term bottom line.

  • Harvest Tax Losses: Even though U.S. stocks continue to rally, asset classes like commodities and some international assets have experienced losses. If you own assets that have dropped in value, consider selling those investments to harvest those tax losses before year end to reduce your 2014 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.
  • 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 may choose to sell out of the holding in advance of the distribution record date. Typically, capital gains distributions occur towards the end of the calendar year. Avoiding the unnecessary taxes from these distributions could be an effective tax reduction strategy.
  • 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 selling your winners and rebalancing your portfolio until early in the next tax year. Either way, set a date and have a plan for systematic rebalancing.
  • 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 appreciated securities with a low cost basis 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.
  • Look for Red Flags and Your Target Asset Allocation: While 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. We recommend periodically checking to make sure nothing is amiss and identify if there are red flags that call for action.

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.

From all of us at GV Financial Advisors, we wish you a very happy holiday season!


Disclosure: The information contained in the article is provided for general informational purposes, and should not be construed as investment advice. This article is not intended as tax advice, and GV Financial does not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances. Past performance is no guarantee of future results.

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.

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