Investment Portfolio Moves To Make Before Year-End

It’s mid-December, and that just doesn’t mean it’s time for eggnog and holiday cheer – it’s also time to make sure your financial advisor is making the necessary changes to your portfolio investments before the New Year clocks in on January 1, 2015.

These moves should be at the top of your advisor’s year-end checklist – if you don’t see them check off that list, you need to follow up and hold him or her accountable, because the following year-end moves are not luxury – they’re a necessity:

Harvest your investment losses – If you’re an investor with capital gains outside of your retirement accounts, you can likely minimize your tax liability through tax-loss harvesting. In a nutshell, that means dumping shares of losing stocks and writing off the loss on your 2014 tax returns, a move your advisor should be shepherding now, because by January 1, 2015, it will be too late for the 2014 tax year.

Tax harvesting is especially useful for high net-worth investors, given the following changes to the tax code in 2014:

  • The highest tax rate on long-term capital gains increased to 20%, from 15%;
  • A new 3.8% Medicare surtax for high-income taxpayers pushed the highest effective long-term capital gains tax to 23.8%
  • The top tax bracket is 39.6% for ordinary income, nonqualified dividends, and short-term capital gains. The previous top rate was 35%. With the Medicare surtax, the effective rate can now be as high as 43.4%.

When you and your advisor do deploy a tax harvesting strategy, note the I.R.S. “wash-sale” rule that negates the write-off if you turn around and purchase the same investment within 30 days of your sale.


Revisit  your investment objectives – The end of the year is also a great time for your advisor to be pro-active and eyeball your investment portfolio, and make any necessary adjustments in portfolio weightings to make sure your investment plan is still on track.

That means rebalancing your investment portfolio if it drifts away from your intended investment strategy. Why rebalance? Two reasons, mainly:

1. It keeps your portfolio on the track you’ve designed it to follow.

2. It keeps your asset allocation strategy well within your natural investment risk levels.

Consider a portfolio that began with 60% of its assets in stocks, and 40% of its assets in bonds.

During the last year or two, the stock market accelerated performance-wise, a trend that will change the face of your portfolio. Consequently, if all portfolio gains and dividends are reinvested and no cash was liquidated from the portfolio, the stock portion of your portfolio has increased, and is valued at a much higher level than your initial $60,000 allocation to stocks, while the bond portion of your portfolio loses some ground relative to stocks.

Now, instead of being a 60% stock and 40% bond allocation, your portfolio is re-weighted to 70% stocks and 30% bonds, an asset allocation level you didn’t start with, and may not want now from an investment risk point of view.

Check with your advisor and make sure a portfolio check-up is done before year-end.

Check Your Alpha – This is part and parcel to the rebalancing strategy noted above, but knowing your portfolio’s Alpha can give you clear and compelling view of your portfolio is doing and how your financial advisor s faring on your behalf.

Put simply, alpha is a statistical measure of an investment’s risk-adjusted performance compared to a benchmark, such as the S&P 500. Alpha is among the best barometers of how your portfolio is doing compared to major market benchmarks, and can also measure your risk exposure against current market conditions.

Ask your money manager to measure and explain your portfolio’s alpha. If he or she hedges, keep pushing – you have a right to know where you stand with your portfolio, performance and risk-wise.

Hunt for dividends and value – The S&P 500 is on a major five-year run, with the current rally so sustained, it ranks as the fourth-longest run-up in stock prices since 1928. That makes the year-end a good time not only to shed losing stocks and funds, but also to see where opportunity lies and get defensive ahead of a predicted slowdown in U.S. stocks. Working with your advisor, hunt for stocks and funds that emphasize portfolio holds with stable earnings and sturdy, dependable dividend payouts.

Also, weigh any energy-related portfolio holdings, given that the price of a barrel of crude oil has fallen to under $65 in late 2014. With demand low and inventory high, oil and gas stocks may remain stagnant in 2015, and it may be time to find opportunity and value in other equity sectors.

Check your diversification levels – By and large, no single investment portfolio holding should comprise more than 5% of your entire portfolio. At year-end, re-check your portfolio and make sure your holdings are spread across myriad industry sectors, industries, and market capitalization levels. Studies show that properly diversified portfolios not only reduce risk exposure, they perform better than non-diversified portfolios.

The big takeaway here? Don’t let the opportunity to check in on your portfolio at year- end pass with fruit on the vine. Harvest those losses, check your asset allocation and diversification levels, and look for new opportunities that can beef up performance in 2015.

So make sure your advisor is on the ball and getting to these year-end portfolio management tasks. Better yet, make sure your advisor shows you exactly where in your account these issues were addressed, to verify they were addressed.

After all, you shouldn’t have to ask, and if you have to, don’t take “no” for an answer.