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Year-End Portfolio Prep

There are several steps investors should take prior to the year-end to position their portfolios for the new year.

Review your goals.

The close of 2015 may bring you one year closer to retirement, or your children may be one year closer to going to college. Take the time to understand what you are hoping to accomplish with your investments. The more clearly you can define your goals, the more likely you will be able to reach them.

Check your asset allocation.

Review your total portfolio and assure that it is in line with your financial goals. In general, if your goals are short-term in nature, your investments should be allocated in more stable assets such as cash and bonds. If your goals are long-term in nature, you may be able to take more investment risk in pursuit of higher returns. For long-term investors, stocks typically offer higher returns than bonds. Even if your goals haven’t changed, you may need to rebalance your portfolio. Over the past several years, stocks, particularly in the U.S. market, have outperformed other asset classes. As a result, you may own more stocks than you should and may need to sell stocks and buy other assets to get back on target.

Consolidate to make your life easier.

If you’re like most people, you may have a number of investment accounts, for example, an old 401(k) from a former employer, a small IRA from years ago, or a 529 for a child who graduated two years ago. For most of us it is probably a good idea to consolidate your accounts to a single advisor. This will make monitoring your investments much easier. It may also save you money on management fees and make tax time less troublesome.

Review your investments.

You should also review your investments. It’s a good idea to get rid of any high-cost mutual funds you may be holding. Funds that cost well above category averages tend to perform poorly in the future. Many funds also include other sales and marketing fees that do nothing to improve investment performance. Also look out for recent management changes or long-term poor performance relative to the fund category.

Get rid of concentrations.

Review your portfolios for concentrated securities. In general, you should watch out for any single stock that makes up more than five percent of your portfolio. Also make sure your portfolio is well diversified; all of your investments shouldn’t be concentrated in a single sector like technology or healthcare. You should also make sure that you are diversified globally as well.

Consider loss harvesting.

Year-end is a good time to consider tax loss harvesting. By selling securities that have declined in value, you may be able to reduce the tax liability on other realized gains. When loss harvesting, you want to make sure you’re not out of the market for too long. In general, it’s a good idea to invest the proceeds from the sale rather than holding cash.

Need to save more? Make it automatic.

Many of us know we need to save more in order to reach our financial goals. The simplest solution is to make saving automatic. Consider increasing your 401(k) contribution for the New Year or setting up an automatic deposit into your other investment accounts. Contact our advisors today to learn how you can benefit from a portfolio review.

Spring Clean Your Finances

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