Year end Financial Tips

6 Year-End Financial Tips

As the year winds down, there are a few things investors can do to get their finances bundled up.  We’re all busy at this time of year, so this will be a short list of actionable items.

Many of the things you do to improve your finances may seem small and insignificant.  But remember, over time many small improvements compound into a major improvement.

1. Max Out Retirement Plan Contributions

The easiest money you can make is the tax savings you can generate by contributing the maximum amount possible to tax-deferred retirement plans such as IRAs, 401(k)s or defined benefit plans.  Those with high income from self-employment are in a particularly good position to reduce their tax bite.  Individual 401(k)s, SEP-IRAs and Defined Benefit Plans (and the high tax-deductible contributions that go with them) may all be useful tools for the self-employed. Make sure you have set up the most advantageous plan for your situation.  Click here to see more details on this topic.  Call us if you are unsure: 619.435.1701

2. Use Investment Losses to Reduce Your Tax Bill

Consider harvesting losses.  If you have realized capital losses in any of your investments in your taxable accounts, you can use them to offset realized capital gains.  If your realized losses exceed your realized gains by $3,000 or more, you can offset up to $3,000 of your taxable income with your capital loss.  Any realized losses above $3,000 can be carried over to successive tax years. In general, if you must realize capital gains, try to make them long-term gains, which are taxed at a lower rate than short-term gains.

Also, be strategic about when you buy or sell mutual funds in taxable accounts late in the year.  Typically, most funds make their capital gains distributions in the last few months of the year.  Be careful not to buy into a fund that is just about to make distributions—as you will receive an unwelcome taxable distribution!  In taxable accounts, it is almost always better to buy into funds after they have made their annual distributions and to sell any funds before they make distributions.  (Better still, don’t own mutual funds in your taxable accounts at all—use tax-efficient exchange-traded funds (ETFs) instead!)

3. Know (or Reassess) Your Tolerance for Portfolio Risk

Knowing how much investment risk you can comfortably withstand is critical and can help keep you from making very damaging decisions when the markets take tumble.  With equity markets having done well of late, many investors are probably quite heavy in their stock allocation.  Consider rebalancing your portfolio.  Not sure how?  Schedule a call with us.

4. Rebalance Your Portfolio

Periodically rebalancing your portfolio to its target asset class weightings can make the process of “buying low and selling high” systematic and unemotional.  Emotionally, it is often easier to add to asset classes that have recently done well and to sell those that have done poorly.  In the long run, however, it can be better to add to worthy assets classes when they are cheap and to reduce exposure to asset classes that have become relatively expensive.  Regular rebalancing will also help to prevent you from becoming over-exposed to any particular asset class.  The end of the year is usually a good time to bring things back into balance.

5. In Investing, Play the Long Game

Most people are investing today to build a retirement nest egg that will be tapped decades in the future.  Thus, worrying whether the stock or bond market was up or down this week or month (or year) is unproductive.  Market pullbacks should be seen as opportunities to add to investments when they are temporarily cheaper, not as reasons to sell.  Knowing your risk tolerance and keeping a long-term focus can help you to ride out the occasional but inevitable market swings.

6. Consider Roth Conversions

In a Roth conversion, you “convert” pre-tax traditional IRA assets into after-tax Roth assets.  When you do so, you will owe tax this year on the amount converted.  However, it may make sense to do a conversion, especially if you think your tax rate will be higher in retirement that it is now.  There are several other factors to consider, however.  We would be pleased to discuss with you.

To learn more about these and other other financial planning strategies, schedule a call with us.

Image: marchmeena29 via

Share This!

Join Our list!

Join our email newsletter list to receive more market updates and financial articles like this one.

Picture of Peter Thoms, CFA, MBA

Peter Thoms, CFA, MBA

Peter Thoms, CFA, founded Orion Capital Management LLC in April 2002. Peter has extensive experience managing investment portfolios for clients pursuing a wide range of financial goals.

Wondering if we can help you reach your financial goals?

Let's Talk!

Schedule a quick introductory call with you and see if we would be a good fit for you.