Who knows where the time goes?
Although 2015 is in the books, you still can make some year-end investment and financial moves, which may help you get off to a good start to this year. Here are a few suggestions:
Boost your 401(k) contributions. Ask your employer if you still have time to add more to your 401(k). If not, at least increase your contributions this year, especially if your salary goes up.
Consider tax-loss selling. We experienced considerable turbulence in the financial markets this past year. So, you may own some investments that have lost value. Generally speaking, it’s a good idea to hold these investments if they still meet your needs. If you do decide to sell them, however, you can use the loss to offset capital gains taxes on investments you’ve sold that have appreciated. If the loss from the sale was greater than your combined long- and short-term capital gains, you can deduct up to $3,000 against other income. In addition, if your losses exceed your capital gains by more than $3,000, you can carry the remaining losses forward to future tax years.
Review your asset allocation. Make sure your asset allocation—that is, your investment mix—still is appropriate for your time horizon and goals. You might consider being a bit more aggressive if you’re not meeting your financial targets, or more conservative if you’re getting closer to retirement.
If you want greater diversification, you might think about adding an asset class, which tends to react to market conditions differently from your existing investments. Diversifying your portfolio may help reduce the impact of volatility. However, diversification, by itself, can’t guarantee a profit or protect against loss. If you do need to adjust, or rebalance, you can do so fairly easily in tax-deferred accounts, such as your IRA or 401(k). For those investments held in a taxable account, however, you should talk to your tax advisor about how to manage the tax consequences of rebalancing.
Evaluate your insurance situation. This past year, did you undergo any changes in your personal life, such as marriage, divorce or the addition of a new child? If so, review your life and disability insurance to make sure they are sufficient for your needs, and list the proper beneficiaries on all insurance policies.
Start an emergency fund. If you don’t already have one, start an emergency fund. Ideally, you’d like to have between six and 12 months worth of living expenses in such a fund. Without it, you might be forced to dip into your long-term investments to pay for unexpected costs, such as a new furnace, a major car repair or a big medical bill. For this fund, you’re less interested in return than in preservation of principal. So, put your money in a low-risk, liquid account.
Making these moves can help you begin the New Year with greater confidence in your financial future.
For more information, call Carolyn Wright-Ruppert at (480) 985-2651, or visit her office at 3654 N. Power Road, Suite 169, Mesa AZ 85215.