The prospect of higher volatility in 2018 warrants a focus on diversification, Aanes says. “Investors need to be more cautious,” he says. Rather, start preparing for an eventual sell-off. It’s been a remarkable year for stocks, marked by dozens of record highs and low volatility, but don’t bank on more of the same ahead, Aanes says. Diversification reduces your investment risk by ensuring you’re not overly exposed to any individual investment.ĭon’t wait until January to strategize for 2018. You want stocks and bonds representing different company sizes, industries and locations, for example. DIVERSIFICATION: Now’s a good time to check your portfolio’s diversification among assets, such as stocks and bonds, and categories within each. Some 401(k) providers offer rebalancing tools, but this is a hands-on project for other types of accounts. If a portfolio that’s meant to be 70 percent stocks has ballooned to 80 percent, you must sell stocks and buy bonds to restore the balance. PORTFOLIO REBALANCING: Not all assets move in lockstep, so over time your portfolio will drift from its ideal weighting. Note: Investors may claim a limited amount of losses on taxes in a given year. The goal? Lower or eliminate the taxes on gains you made in taxable accounts during the year. OFFSET GAINS AND LOSSES: Also known as tax-loss harvesting, this involves selling investments at a loss before Dec. Kate Warne, investment strategist at Edward Jones, recommends doing these three basic maintenance tasks by Dec. Want a useful end-of-year ritual? Spend some time reviewing your portfolio. “Once the ship has sailed, it’s over,” Aanes says. This strategy requires precision, and there’s a short window of opportunity. Be sure to check the capital gains tax implications before doing so. Eric Aanes, president and founder of Titus Wealth Management, a registered investment adviser, recommends selling actively managed mutual funds before the ex-dividend date and buying index funds instead. Seasoned mutual fund investors may prefer a proactive approach to avoid capital gains taxes. If you’re investing in a fund for the first time, do so after the date determining eligibility for distributions, known as the ex-dividend date, so you don’t pay taxes on gains you didn’t enjoy. Hold off on buying funds between now and January to avoid an unnecessary tax burden.Īctively managed mutual funds generally pay realized annual gains in December, and all shareholders who own the fund in a taxable account must pay taxes on distributions, no matter how long they’ve held it. Keep the max-out mentality going into 2018 and you won’t face a last-minute scramble again.ĭon’t ignore taxes until April, especially if you’re a mutual fund investor. Finally, ask your payroll department about rules for lump-sum contributions and cutoff dates for plan changes.Įven if you can’t hit the max, your late-year contributions will grow over time thanks to compound interest - and they’ll lower your taxable income. Those 50 and older can save up to an additional $6,000 this year and next.įind out how close you’ve come to the max this year, then calculate how much of the difference you can set aside by year-end without upending other financial goals. People younger than 50 can save up to $18,000 in a 401(k) in 2017, and the limit will increase to $18,500 in 2018. The IRS imposes strict contribution limits on tax-advantaged retirement plans. If that hasn’t happened yet, you have until Dec. Perhaps you began the year intending to max out your 401(k). Use this simple checklist to save money and prepare your finances for 2018.
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