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Published: Dec 19, 2022 12 min read

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Illustration of a pen, where the tip is the pyramid eye, marking off boxes on a checklist
Pete Ryan for Money

Before you pop the Champagne and ring in the new year, take the time to check in on your investing plan. Your future self will thank you.

Investors have had a rough year. The S&P 500 kicked off January at an all-time high before experiencing rollercoaster-like volatility that's now put the index down around 20% for the year. It's not just stocks. Other financial assets like bonds and crypto have also taken a hit as the Federal Reserve continues to hike interest rates to fight decades-high inflation — hopefully without tipping the economy into a recession (something experts continue to be fearful will happen in 2023).

All things said, you may be sick of checking your investment portfolio and seeing red. But making a few year-end moves could set you up for long-term success.

While these moves don't all have year-end deadlines, experts say it's a good time see to how your investments have done and consider making changes. Here are nine checklist items to consider.

1. Rebalance your investments

This year hasn't been kind to the financial markets.

That means it's likely that the allocation of various financial assets you set when establishing your investment plan are no longer in line with that plan, like the classic 60/40 stock-to-bond ratio, for example. Enter rebalancing, which refers to selling assets that now take up more of your portfolio than your strategy calls for, and buying assets that now have a smaller percentage than you'd like.

While some investors rebalance monthly or quarterly and others do it semi-annually or annually, experts agree that now is a really good time to check in on your investments. As Money previously reported, Clayton Gardner, a founder and co-CEO of the investing platform Titan, says an end-of-the-year rebalance can come with major tax benefits. More on that below.

2. Take advantage of tax loss-harvesting

Those tax benefits Gardner is referring to come from tax-loss harvesting, which is when investors offset gains in their portfolio with losses on other investments, which can lower their taxable income and what they'll have to pay in taxes come next year.

Investors can use capital losses to offset capital gains on investments and, if there are still losses left over, offset up to $3,000 of their income in a given year. If there are still losses available, you can carry them over to future years.

Because the financial assets like stocks, bonds and crypto have suffered, experts say this could be an especially good year to take advantage of tax-loss harvesting, which you have to complete by Dec. 31.

3. Consider other smart tax moves

Federal income tax returns aren't due until April, but there are several strategic year-end tax moves to consider.

Investing in a 529 plan that lets account holders use the tax-free earnings and money saved to pay for qualified educational expenses, like tuition and textbooks, could be a good move — and you don't have to be a parent. Contributing to a 529 for your grandchild, niece, nephew, friend or another loved one could help them and help you lower your next tax bill: Most states allow you to deduct contributions on your state taxes as long as you contribute before the end of the year.

Contributing to retirement accounts that take pre-tax money, like 401(k)s and individual retirement accounts (IRAs), also lowers your taxable income. The deadline to contribute to IRAs is Tax Day, but the deadline is Dec. 31 for 401(k) accounts.

A Roth conversion, which entails transferring money from a traditional IRA to a Roth IRA, may not lower your tax bill but it could be a good move in the long term if you think you'll be in a higher tax bracket in the future. It's not the best strategy for everyone but if it makes sense for you, experts say now may be a good time since financial markets have struggled and your balance is likely lower. (You pay taxes on the amount of money you convert.)

Check out Money's full list of tax moves to consider before Dec. 31.

4. Reassess your risk tolerance

How much risk can you stomach? Now is a good time to reconsider.

This is a perfect time of year to step back and think about how much you can stand to lose. You should consider the amount of risk you can take emotionally as well as financially, according to Mark Riepe, head of the Schwab Center for Financial Research.

"Time is a big factor here," he said via the Schwab site. "When you've got a decade or more until you need to tap your savings, short-term volatility isn't a big risk. But if you'll need the money in, say, five or fewer years, a market downturn can be devastating."

With the year coming to a close — and an especially stressful and volatile year at that — experts say now is a good time to check in on your financial situation and what it will look like in the months ahead. Have you changed jobs? Are you expecting to buy a home or make another major purchase in the new year? If so, your risk tolerance may have changed, and your investment portfolio should be adjusted to reflect that.

5. Consolidate retirement accounts

Consider tying up loose ends by consolidating old retirement accounts that you are no longer contributing to, says Danielle Miura, financial planner at Spark Financials, a financial planning firm based in Ripon, California. This may look like moving investments from several IRAs into one or processing a 401(k) rollover.

There are five main reasons why someone would want to consolidate their old retirement accounts into one IRA or process a 401(k) rollover, she says: fewer fees, simplified finances and less maintenance, plus it's easier to manage taxes and easier for beneficiaries to handle. Combining multiple 401(k)s and/or IRAs makes portfolio rebalancing and mandatory account withdrawals easier, too.

To get started, she recommends gathering statements from all your accounts by contacting your old employer, using websites like unclaimed.org, or contacting the U.S. Department of Labor.

"Review your statements to help you decide which accounts to keep and which to consolidate, such as looking at the plan's investment choices, fees and convenience of their online platform," Miura says.

6. Check your cash position

While we're all about investing your money for your future self, you want to make sure you have enough cash available to cover costs you can't foresee, like a job loss or surprise medical expense. Now is a good time to make sure you have what you need set aside for those emergencies — especially if you get a holiday bonus or cash gift.

"The 'magic number' of what to have will be different for everyone and dependent on your income and circumstances," says Brian Farrell, wealth management advisor at Greenleaf Trust in Kalamazoo, Michigan. "But holding an emergency fund that you can quickly access in the event of an unexpected expense will alleviate the need to use costly debts."

Financial advisors typically recommend having enough cash handy to cover at least three to six months of expenses, but with recession concerns getting louder, you may want to bump that number up a bit. A high-yield savings account is a good place to park this money, especially since many are currently offering generous annual percentage yields (APYs) of 3% or higher.

If you realize you have more cash on the sidelines than recommended, you can take the chance to invest more in your 401(k), IRA or taxable brokerage account.

7. Review your beneficiaries

Planning for the worst never hurts. Eric Roberge, financial planner and founder of the Boston-based financial firm Beyond Your Hammock, says it's a good time to review the beneficiaries on your investment accounts — as in, the people who will receive the assets in your accounts should you pass away.

"This is especially important to do if you've had a major life event or change in the last year," like marriage, divorce or having a child, Roberge says.

He recommends not only reviewing who is listed as your primary and contingent beneficiaries (the primary beneficiary is first in line and contingent is next), but also the allocation you have set. You may need to add a second child as another contingent beneficiary alongside your first, for example, and change the allocation to be 50/50 with half going to each child.

8. Review your fees

While taking a look at your portfolio, check how much you're paying in fees — and if there are any ways to save, says Matthew McKay, a portfolio manager at Briaud Financial Advisors in College Station, Texas.

Those fees could include advisor fees, expense ratio on mutual funds, exchange-traded funds or transaction costs.

"Paying a large fee on a fund must be justified by superior performance to the benchmark," McKay says. "If not, the case is hard to make."

When looking for mutual funds, typically look for an "expense ratio" — a fee you'll have to pay — below 1%. Fees for ETFs are generally lower, since most are not managed by professionals, and many come with expense ratios of less than 0.1%.

"Paying the highest fees is rarely justified," McKay adds.

9. Set up auto investing for 2023

Part of a year-end investing checkup is making sure that you're setting yourself up for success in the next year, like using auto investing (or revisiting the amount you're auto investing if you already do so).

"The more automated these contributions are, the more chance of it actually happening," says Anna Sergunina, president and CEO of MainStreet Financial Planning in Los Gatos, California.

If you have a 401(k) or other employer-sponsored retirement account, you likely already have money automatically pulled from each paycheck and invested. But you can set up auto investing from your paycheck or bank transfers for other types of investing accounts, like IRAs and taxable brokerage accounts, too. Most major investing platforms, like Fidelity and Charles Schwab, offer auto investing.

By investing at regular intervals — like per paycheck, monthly or quarterly — you won't have to try to time the market. Instead, you'll be dollar-cost averaging, which is a strategy that experts say tends to pay off in the long run.

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Time Is Running out to Make These 6 Year-End Tax Moves

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