On Your Mark, Get Set for 2024…
And Go!
To say the least, there’s been plenty of political, financial, and economic activity this year—from rising interest rates to elevated inflation to ongoing market turmoil.
How will all the excitement translate into annual performance in our investment portfolios? Markets often deliver their best returns just when we’re most discouraged. So, who knows! While we wait to find out, here are six action items worth tending to before 2022 is a wrap and how to prepare financially for 2023.
1. Revisit Your Cash Reserves
Where is your cash stashed these days? After years of offering essentially zero interest in money markets, savings accounts, and similar platforms, some banks now offer higher interest rates to savers. Plus, some money market funds may have quietly resumed charging underlying management fees they had waived during low-rate times. It might pay to shop around, keep an eye on fees and make sure your money is FDIC-insured.
2. Put Your Money to Work
If you’re sitting on excess cash, you may be able to put it to even better use under current conditions. Here are three possibilities:
- Rebalance: You can use cash reserves to top off investments that may be underweight in your portfolio. Many stock market prices have been depressed as well, so this may be an opportune time to “buy low” if it makes sense within your investment plans.
- Lighten your debt load: Carrying high-interest debt threatens your financial well-being, especially in times of rising rates. Consider paying off credit card balances, or at least avoid adding to them during the holiday season.
3. Make Some Smooth Tax-Planning Moves
Another way to save more money is to pay less tax. Here are a couple of year-end ideas for that.
- It’s still harvesting season: Market downturns often present opportunities to engage in tax-loss harvesting by selling taxable shares at a loss and promptly reinvesting the proceeds in a similar (but not identical) fund. You can then use the losses to offset taxable gains without significantly altering your investment mix. When appropriate, we’ve been helping RCS clients harvest tax losses throughout 2022. There still may be opportunities before year-end, especially if you’ve not yet harvested losses year to date. We encourage you to consult with a tax professional first; tax-loss harvesting isn’t for everyone and must be carefully managed.
- Watch out for dividend distributions: Whether a fund’s share price has gone up, down, or sideways, its managers typically make capital gain distributions in early December based on the fund’s underlying year-to-date trading activities through October. In your taxable accounts, if you don’t have compelling reasons to buy into a fund just before its distribution date, you may want to wait until afterward. On the flip side, if you are planning to sell a taxable fund anyway—or you were planning to donate a highly appreciated fund to a charity—doing so prior to its distribution date might spare you some taxable gains.
4. Check Up on Your Healthcare Coverage
As year-end approaches, make sure you and your family have made the most of your healthcare coverage.
Examine all your benefits: For example, if you have a Health Savings Account (HSA), have you funded it for the year? If you have a Flexible Spending Account (FSA), have you spent any balance you cannot carry forward? If you’ve already met your annual deductible, are there additional covered expenses worth incurring before 2023 re-sets the meter? If you’re eligible for free annual wellness exams or other benefits, have you used them?
5. Get Set for 2024
Why wait for 2024 to start anew? Year-end can be an ideal time to take stock of where you stand and what you’d like to achieve in the year ahead.
Audit your household interests: What’s changed, and what hasn’t? Have you welcomed new family members or bid others farewell? Changed careers or decided to retire? Received financial windfalls or incurred capital losses? Added new hobbies or encountered personal setbacks? How might these and other significant life events alter your ideal investment allocations, cash-flow requirements, insurance coverage, estate plans, and more? Take an hour or so to list key updates in your life, so you can hit the ground running in 2023.
How Can We Help?
How else can we help you wrap up 2023 and position you and your loved ones for the year ahead? Whether it’s helping you manage your investment portfolio, optimize your tax planning, consider your cash reserves, weigh insurance offerings, or assess any other components that contribute to your financial well-being, we stand ready to assist—today and throughout the years ahead.