As investors review their year-end financial statements, many are examining their strategies and making preparations for managing their wealth in the future. The ringing in of the New Year brings new opportunities to investors to further diversify their portfolios, consider new assets and adopt new strategies. However, all of these goals will be heavily driven by their tax obligations, making it important to take a measured approach for setting goals.
One of the simplest, yet most effective, tasks for investors to take during the new year is to create an investor plan. These plans typically encompass an individual's financial goals, investment strategies and tolerance for risk. It's important for even the most seasoned of investors to reevaluate their plans each year, as their goals and risk tolerance may change as life events occur, all of which may affect their strategies. For instance, most younger investors carry higher risk loads because they can afford to make mistakes. As individuals near retirement, however, and generate wealth that pushes them into new tax brackets, they may choose to take a more conservative approach.
Additionally, the beginning of the year is a good time for individuals to review their portfolios and ensure that it still matches up with their goals.
"Review your goals and whether the way your portfolio is constructed is designed to meet those goals," Dean Junkans, chief investment officer at Wells Fargo Wealth Management, told USA Today. "Is your portfolio tax efficient? Do you have the right mix of assets, such as stocks, bonds, real estate and commodities? Is it time to rebalance your portfolio to get your asset mix back in sync? After the big run-up in stocks in 2013, you might hold more in stocks than your financial plan calls for."
Consider the costs of investing
In addition to weighing goals and risk against strategies and portfolios, it's also important for investors to consider the outside costs of investing, such as fees and taxes. Many people ignore fees and expenses associated with their investment activity, which sometimes results in them paying more than they should. Over a period of decades, this can lead to between hundreds and thousands of dollars spent in avoidable fees. Reviewing broker fee structures and comparing them against industry standards can be an easy way for individuals to determine if what they are paying is a fair amount.
Lastly, investors should be assessing their portfolios with their taxes in mind. The end of the year may be a good time to sell off losing investments to help offset capital gains. Of course, each situation is different, and working with a tax preparer to gain a more comprehensive picture can help individuals make a more informed choice.