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Giving your portfolio an annual check-up is a good idea. Here’s what you should do to ensure it’s ready for the new year.
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The end of the year is a great time to closely examine your investment strategies and decide whether or not they’re working for you. Many people take an assessment of their brokerage account this time of the year because they’ll soon be doing their taxes, but there are other reasons to perform an annual check-up.
For example, maybe your financial situation has changed, you’re nearing retirement, or your risk tolerance has changed. No matter the reason, here are a few moves you should consider making with your brokerage account before 2024.
1. Rebalance your portfolio
Over time, the value of your investments will fluctuate, causing some to be worth far more than others. This is normal, of course, but it can send your portfolio out of balance.
For example, maybe the value of your tech stocks has increased significantly over the past year while some of your energy stocks haven’t done well. If you want to balance the two types of stock sectors, you may want to consider selling some of your tech stocks or buying more energy stocks.
Rebalancing also applies to the types of investments you make, like stocks versus bonds. For example, if you want an asset allocation focused on growth, you want to keep 70% of your money in stocks and 30% in bonds. A quick look at your brokerage account at the end of the year will show you whether you’re still meeting that goal.
2. Reevaluate your investment thesis
This could be a general reevaluation of how you invest your money, reconsidering individual investments, or both.
For example, look back on the performance of your investments over the past year and ask yourself whether your stock purchases are giving you the desired results. Did you take too many risks or not enough? Did you lean too heavily toward one investment idea that kept you from diversifying your investments?
I have one stock I’ve been very patient with, but it hasn’t performed well over the past several years. The company is facing new hurdles that it wasn’t facing when I bought the stock, which has changed my investment thesis for the company.
Take a little time to reflect on the investment decisions you’ve made and why, and make any necessary changes in your brokerage account based on what you’ve learned. I know I will be.
3. Make sure you’re being tax efficient
Lowering your tax requirement shouldn’t be the primary driver of what you do with the money in your brokerage account, but being tax efficient is certainly worth the effort.
For example, you may want to consider how much you contributed to tax-advantaged accounts like a traditional IRA account or Roth IRA this year and decide whether to allocate the same amount in 2024. For 2024, the IRS says you can contribute up to $7,000 in an IRA account or $8,000 if you’re 50 or older and want to make a catch-up contribution.
Both IRA account types have their tax advantages. In general, the Roth IRA allows your contributions to grow tax-free, while contributions to a traditional IRA will enable you to lower your taxable income. Whichever you choose, it’s a good idea to evaluate if the strategy currently works based on your income and how close you are to retirement.
4. Consider talking to a professional
If making changes to a brokerage account is overwhelming, you may want to hire a financial advisor.
About 35% of Americans use a financial advisor, and hiring one could help you better understand what you should be doing with your money based on your age, income, risk tolerance, and retirement expectations. Talking through all your options with a professional could help you decide which direction to go in.
And if you want some help but aren’t ready to hire a human professional, consider using a robo-advisor to help you allocate your investments automatically.
Spending time evaluating your brokerage account doesn’t have to be a difficult task. But it can help you ensure that your investments are on the right track and your retirement goals are met.
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