Holiday lights began encroaching on the Halloween decorations in the shops a few weeks ago.
But as much as retailers might be trying to incite a premature holiday season, the next few weeks are a relatively tranquil period. And that’s a great time to cross a lot of financial to-dos off your list, rather than risk doing a sloppy job by squeezing them into the holiday season.
Here's a short list of portfolio to-dos to check off between now and year-end, or even sooner.
See If Rebalancing is in Order
Let's be honest: In most years, rebalancing isn't a must-do. Failing to trim your 68% equity weighting back to your target of 65% is not going to stand between you and a comfy retirement. Yet rebalancing becomes more important in a market like the current one, in which stocks have soared and bonds have been relatively weak.
Given the stock market's amazing run over the past few years, it may be tempting to let the good times roll. Bond yields are unattractive, interest rates will trend up at some point, and equity market valuations, while not low, don't appear to be in bubble territory. And at an emotional level, winning feels good, so why trim stocks?
But restoring your portfolio's equity allocation back to its target level will reduce its volatility level going forward. You should hold your nose and rebalance some of your equity allocation back into bonds, even if the prospects for fixed income don't look especially bright. Identify areas of your equity portfolio that could be in particular need of trimming because they look more richly valued at this time.
Maximise Retirement Contributions
If you haven't yet made the maximum allowable contributions to your SIPP this year, do so. You have until April 4 at the end of the tax year, but it should be on your radar sooner. You can contribute as much as you earn, up to the annual maximum limit which is £40,000 for this 2015/2016 tax year.
If your retirement investments are held within an ISA, the current year’s maximum contribution is £15,240 per person so a couple can squirrel away up to £30,480 in this tax year.
Scout Around for Tax-loss Sale Candidates
A rising market makes it more difficult to find positions that you're holding at a loss, but it also makes them more valuable because you can use them to offset capital gains from winning positions or, if your realised capital gains are all exhausted, ordinary income. Emerging-markets funds have suffered in recent years and could be ripe for the selling if you're holding them at a loss. Many bond funds are also in losing territory during the past three years and so are the investors in them.
You can re-purchase another similar investment right away if you'd like to maintain exposure to that area; just be sure to choose a different type to avoid negating your tax. Swapping an active emerging-markets fund for a passive vehicle should be okay, but swapping an emerging-markets index fund for an emerging-markets exchange-traded fund probably isn't.
Sell Your Winners
While it is nearly impossible to predict the market – even the professionals routinely get it wrong – trimming profit after an extended run is a good habit to acquire. If your holdings have doubled in the last year it is unlikely that sort of exponential return will be repeated. If you have strong conviction in a holding, instead of selling out entirely just cash in the profit.
This is an amended version of an article originally written by Christine Benz, director of personal finance for Morningstar.
