A Year-End Checklist for Investors

Tuesday, December 22, 2020 4:01 PM | Nick Dey

Performing a year-end checkup on your portfolios is an important tradition for investors who want to maximize returns.

This is a time for investors to do some tax harvesting, prepare for the year to come, and reevaluate their goals.

Despite 2020 having been a tough year, investors can remember the year for the astonishing returns that followed a historic crash. Regardless of how well you traded the highs and lows, the year has not ended yet and there still remain opportunities to maximize your returns.

Harvest Losses

Tax Loss Harvesting is an important year-end tradition for investors. Tax harvesting is when investors sell losing investments in order to offset some of their gains for tax purposes. Investors put their losing picks to work here to limit their tax liability and maximize the amount of money they walk away with at the end of the year.

Capital gains, the profits from an investment, are almost always taxed at a higher rate for short-term holdings than long-term holdings. This gives investors an incentive to offset as much of their realized short-term capital gains as possible. Selling-off stocks that are in the red subtracts from the total that investors are liable to pay taxes on.

Tax Loss Harvesting can be performed at any point of the year, but becomes a common practice as the year rounds out.

Eliminate Imposters

Now that you’ve cut your losses, the next thing is to try to limit future losses. Do you have stocks that underperformed the rest of their sector or industry this year?

Are there things you used to love, but think may have run their course?

This is the time to make sure you believe in everything you've got in your portfolio. Each holding should have a reason. Either you expect it to go up, it's part of a diversification strategy or a hedge against uncertainty.

If you have things in your portfolio and the only reason is "I haven't sold it yet" or "I keep meaning to do something with that".  Now is the time to do something about it.

Get Things Balanced

Once you trimmed your losers and anything taking up space, now is the time to make sure you have the portfolio you want. Your portfolio composition changes over time. Winners become a bigger part the pie, while slower-growing assets shrink.

This can lead to your portfolio becoming overweight some riskier assets while the amount devoted to safety and stability shrinks.

This is a good time to make sure your portfolio has the right balance between those high-risk/high-reward positions and the steadier positions that should make up the bulk of your assets.


Lastly, investors should think back to the goals they set for their 2020 finances. Assess where things went better and worse than expected and zero in on what is that helped you reach some goals succeed and what held you back from others. Having a solid understanding of these "whys" will not only help you make more attainable goals in the future, but will also make more goals attainable to you by improving your process.

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