Your Year-End Investment Planning Checklist

Thanksgiving is rumbling by and Christmas is dead ahead. Now is a good time to take stock of your investing year and the plan ahead. Before you know it, tax time will be upon us.

Broadly speaking, you shouldn’t do a lot to your investments just because of what month we’re in or what you think might happen in the coming year. In the pure investment sense, December is just another box of days on the calendar.

Nevertheless, some important deadlines are coming, and it merits thinking ahead on those.

Check your withholding for next year

Perhaps the most important thing you can do is look over your pay stub and ask yourself if you put away the right amounts in all of your tax-deferred accounts, such as health savings accounts, flexible spending accounts and retirement plans. If you change these, it will change your tax withholding in 2021.

It’s always better to have the smallest possible refund (or none at all) but to owe no tax come next year. Your human resources folks should be able to help you sort out these figures, or ask an accountant for help.

Up your 401(k) or IRA contribution if possible

If you do see a refund forming in 2020 (and it will repeat in 2021) it might be time to increase your 401(k) or IRA contribution. You can change your contribution level to a 401(k) most any time of the year, but there’s no time like the present!

There are plenty of online calculators that will help you figure out how much your paycheck will go up due to the lower taxable income. It probably won’t cover the difference but it likely will go farther than you might think.

Make your year-end contributions soon

You might find that your tax rates are lower than in recent years and you haven’t got around to dealing with the windfall. If you see a refund coming, go ahead and put a chunk of that into your 401(k) at work as a one-time contribution or into an IRA.

The deadline for most 401(k) plans to add money is the end of the calendar year. For IRAs you have until Tax Day. Most self-employed people who file a tax extension can get until Oct. 15.

Update your beneficiaries

Financial advisors always mention this because an alarming number of people simply forget to change beneficiaries to reflect changes in their personal lives, often from divorce or the passing of family members. It’s just a good idea to look at all of your beneficiaries and percentages at least annually, so why not now?

Finally, reconsider your investment risk

Another year has passed. Leaving aside for the moment the headlines and your view of the markets, ask yourself: Is the amount of stock I own truly in line with my willingness to take the risk associated with equities?

If stocks have gone up, you might find your 60/40 stock and bond target now looks something more like 80/20. Rebalancing back to your target is a good idea at least once or twice a year. It will keep you on track with your retirement without necessarily taking on more risk.

If you invest through low-cost index funds, this process is fairly easy. Rather than trying to figure out which stocks to sell and which to buy, you can sell off a percentage of your stock fund and reinvest it into a bond fund in one shot. Diversification is key, but it also simplifies your investing life.

Now that you’ve walked through these basic steps, a final step could be to involve your significant other in your decisions and where you both are going financially in the next year.

Having a second opinion and shared goals should only strengthen your resolve, come what may in the year ahead.

MarketRiders, Inc. is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.