As the year winds down and the holiday season approaches, it’s tempting to shift your focus from markets to merriment. But before you hang up your financial hat for the year, a few strategic moves can help you lock in gains, reduce your tax bill, and position your portfolio for a strong start in the new year. Here are three smart steps to take before year-end.
1. Rebalance and Reassess Your Asset Allocation
A lot can change in a year—markets move, interest rates shift, and your life goals evolve. That’s why now is the perfect time to review your asset allocation and ensure your portfolio still aligns with your long-term objectives and risk tolerance.
If stocks had a strong year, your equity exposure may have drifted higher than intended, increasing your risk profile. Conversely, bonds or alternative assets may now represent a smaller slice of your portfolio than planned. Rebalancing—selling some of what’s grown and reinvesting in lagging areas—helps restore balance and discipline.
While you’re at it, reassess your broader financial picture. Have your goals changed? Has your income, tax bracket, or time horizon shifted? Adjust your portfolio accordingly so your investments continue to serve you, not surprise you.
2. Harvest Tax Losses (and Gains) Strategically
Tax-loss harvesting remains one of the most powerful year-end tools for investors in taxable accounts. If you’re holding underperforming positions, selling them to realize losses can offset capital gains realized elsewhere—and even reduce up to $3,000 of ordinary income.
But don’t stop there. You can reinvest the proceeds into similar—but not “substantially identical”—securities to maintain market exposure while still capturing the tax benefit. Just be mindful of the IRS wash-sale rule, which disallows losses if you repurchase the same or substantially identical investment within 30 days.
Likewise, investors in lower tax brackets may consider harvesting gains—selling appreciated assets to reset cost basis while paying minimal or no capital gains tax. It’s a savvy move that can pay dividends in the long run.
3. Maximize Contributions and Charitable Giving
Before the ball drops on December 31, check that you’ve fully funded your retirement and tax-advantaged accounts. Maxing out 401(k), IRA, or HSA contributions can significantly reduce your taxable income while setting you up for future growth.
The holidays are also a season of giving—and charitable donations can provide meaningful tax benefits. Whether through direct cash gifts, donor-advised funds, or donating appreciated securities (to avoid capital gains taxes), charitable giving can be both generous and financially strategic.
If you’re age 70½ or older, consider making a qualified charitable distribution (QCD) from your IRA. It counts toward your required minimum distribution and is excluded from taxable income.
Final Thoughts
Taking a few hours to fine-tune your portfolio before the holidays can make a big difference in your financial outlook. Rebalance thoughtfully, be tax-smart, and make the most of contribution opportunities. Then, when you finally unplug for the season, you’ll have the peace of mind that your finances are wrapped up neatly—ready for a prosperous new year.