As the year draws to a close, it’s a great time to take stock of your finances and prepare for opportunities ahead. While reviewing your investment portfolio may not always be top of mind, ensuring that your investments are well-structured, diversified and aligned with your goals can help set you up for success in the coming year and over the long term.
Assess Your Progress Toward Financial Goals
A cornerstone of financial planning is designing an investment portfolio that aligns with your risk tolerance and long-term goals. Although most Americans understand the importance of saving for retirement, only 39% report having a clear plan for retiring at a specific age.
Keep in mind:
- Don’t be discouraged if you don’t yet have a financial plan — it’s never too late to start.
- If you already have a plan, the holiday season is an ideal time to review your progress and compare your results with your projections.
Revisit Asset Allocation & Rebalancing
Optimizing your strategic asset allocation is essential for keeping your portfolio on track. Over time, market performance can cause your holdings to drift away from their targets, which may increase risk or reduce efficiency. Rebalancing helps restore balance and discipline to your investment strategy.
Consider:
- Life circumstances and market conditions change — review your allocation regularly and make adjustments as needed.
- With stocks outperforming many other asset classes in recent years, your equity exposure may have crept above your intended level.
Beware the Cash Trap
While holding some cash is important for liquidity and emergencies, too much can hold back your portfolio’s growth. Cash typically underperforms other asset classes after accounting for inflation and taxes.
Guidelines to follow:
- Maintain an emergency fund covering 3 to 6 months’ worth of living expenses, plus any cash needed for major purchases in the next 12 months.
- Avoid holding excess cash that could otherwise be invested toward your financial goals.
Diversify Investments and Monitor Expenses
Proper diversification remains one of the most effective ways to manage investment risk. Equally important is keeping expenses under control — research consistently shows that high fees can erode long-term returns.
Best practices:
- Avoid concentrated bets in individual stocks, sectors or regions that deviate significantly from global benchmarks.
- Periodically compare the ongoing operating expenses of your holdings against industry averages to identify cost-saving opportunities.
Optimize Asset Location
Smart tax management can enhance your after-tax returns. Placing the right assets in the right accounts can help minimize your overall tax burden.
Tips to consider:
- Hold income-generating assets such as bonds in tax-deferred retirement accounts.
- Place equity index funds in taxable accounts, where dividends and capital gains may qualify for lower tax rates.
Building and maintaining an effective investment portfolio can be complex, and as the new year approaches, it’s a good time to reflect, rebalance and refine your strategy. A well-structured, diversified and tax-efficient portfolio — developed in partnership with a fiduciary advisor such as a CERTIFIED FINANCIAL PLANNER® professional, who commits to CFP Board to act in your best interests — can help you move confidently toward your long-term financial goals.
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