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Published Fri, Dec 18, 2020 8:00 AM EST
By: Michelle Fox @MFOXCNBC
Whether it is an individual retirement account, an employer-sponsored plan like a 401(k) or a brokerage account, assessing your portfolio is crucial.
Rebalancing your portfolio
While the stock market has been volatile, it is up — which means your portfolio could be out of balance. Instead of a 60% stocks/40% bonds split, you could be more heavily weighted in equities than you want. “If there is a big downturn, you will expose yourself to a bigger loss,” said CFP Jude Boudreaux, senior financial planner with The Planning Center in New Orleans.
Sell some stock to get yourself back to your original asset allocation.
“Buy low, sell high,” he said. “Stay disciplined to a strategy.”
If you have a target-date fund in your 401(k), which is geared towards your anticipated retirement date, it will automatically adjust the allocations based on your age.
Next year’s 401(k) contributions
Try to contribute enough to your 401(k) to at least get your employer’s matching contribution, if there is one.
“Pay yourself first,” Totah said. “Save the money first, and then spend what is left over.”
It may also be a good time to see if you can bump up the amount of your contribution for next year.
“Don’t let the perfect ‘I can’t get to the max so I won’t make any changes’ get in the way of doing 1%,” said Boudreaux, a member of the CNBC Financial Advisor Council.
“Try 1% and see how it goes,” he added. “Taking a step forward and doing a little more can be a big plus.”
You may also be in line for an annual raise. For instance, if it is 3%, aim to bump up your contribution by 2%, if you can.
“Catch-up contributions are so critical,” Totah noted. “You are in the last quarter of the game.
“You have to start socking it away if you are short of your goals.”
The right exposure
You may find that you have a lot of stocks in a certain sector, especially if there were a lot of gains during 2020. You may consider reducing some of that exposure, Totah said.
You may then increase your exposure in another area.
“Make sure that the positions that you own currently are the positions you want to own next year in possibly a new type of economic situation,” he said.
If you made money on the sale of some investments this year, you can offset those gains with selling other assets at a loss during the same year.
This is called tax-loss harvesting, and it should reduce the amount of capital gains taxes you’ll have to pay.
If you have shares that have gone up in value, you can give them to a charity and not pay the capital gains tax. You also get the charitable deduction on your income tax if you itemize. If you take the standard deduction, you still get a $300 charitable deduction write-off this year.
Those 70½ and older can make a qualified charitable distribution from their IRA without itemizing their taxes. It is a way to donate money directly from your account without paying taxes on the withdrawal.
Remember, although life can get hectic around the holidays, it is a good time to also pause and reflect on your financial strategies, said Boudreaux.
“Think about what we want to be different next year and what steps we want to take to make that happen,” he said.
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