When and How to Rebalance Your Investment Portfolio for Maximum Tax Savings
If you have money invested in a taxable account, now is the perfect time for some rebalancing. Money Magazine also offers a simple rule of thumb on when to rebalance, whether your assets are in a taxable or tax-protected account.
The end of the year is the natural time to get on with this work and make sure your investments don’t stray too far from the planned asset allocation.
For example, if at the beginning of last year you had 60% of stocks, 30% of bonds and 10% of goods, then now you have 65% of stocks / 30% of fixed income / 5% of goods balance. Simple solution: When your distribution changes by at least five percentage points, take some profit from your winners and make up for the losers.
It gets a little more complicated when your investments are spread across different brokerage houses or investment account types. However, Money also offers tips on how to change your balance without losing money due to taxes. Instead of selling investments, for example, and levying capital gains tax, buy more assets that are lost in the market:
Take a $ 200,000 portfolio with 75% stocks and 25% bonds. Do you want to return this value to 70% / 30%? If you are planning to save $ 10,000 next year in IRAs and 401 (k), simply channel those new contributions into fixed income funds and you will largely accomplish your goal.
Also keep your attachments in the correct account type based on their tax efficiency .
Just another money order at the end of the year that could save you a lot of money in the new year.