The final countdown
Improving your finances before the new year
There are a number of moves you can make now to prepare your finances for 2018. Here’s a checklist:
1 Max out 401(k) contributions If you haven’t maxed out your 401(k) savings, you have until Dec. 31 to fund your account.
The IRS imposes strict contribution limits. People younger than 50 can save up to $18,000 in a 401(k) in 2017 and those 50 and older can save up to $24,000.
Find out how close you’ve come to the max thus far this year, then calculate how much of the difference you can set aside by year-end without upending other financial goals.
Finally, ask your payroll department about rules for lump-sum contributions and cutoff dates for plan changes.
2 Re-examine your portfolio
Spend some time reviewing your portfolio. Kate Warne, investment strategist at Edward Jones, recommends doing these three basic maintenance tasks by Dec. 31.
3 Offset gains and losses Also known as tax-loss harvesting, this involves selling investments at a loss before Dec. 31. The goal? Lower or eliminate the taxes on gains you made in taxable accounts during the year.
4 Portfolio rebalancing Not all assets move in lockstep, so over time your portfolio will drift from its ideal weighting. If a portfolio that’s meant to be 70 percent stocks has ballooned to 80 percent, you should sell stocks and buy bonds to restore the balance.
5 Diversification Now’s a good time to check your portfolio’s diversification among assets, such as stocks and bonds, and categories within each. You want stocks and bonds representing different company sizes, industries and locations, for example. Diversification reduces your investment risk by ensuring you’re not overly exposed to any individual investment.
6 Plan for 2018 It’s been a remarkable year for stocks, marked by dozens of record highs and low volatility, but don’t bank on more of the same ahead, said Eric Aanes, president and founder of Titus Wealth Management. Rather, start preparing for an eventual sell-off.
“Investors need to be more cautious,” he says.
The prospect of higher volatility in 2018 means investors should add defensive stocks to their portfolios — companies that generally do well during periods of uncertainty.
Warne favors international stocks and says diversification will help investors weather a market that's likely to deliver lower returns ahead. She recommends scaling back on risky investments, even as the stock market continues to climb.