Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons to Give Your Investments a Year-End Checkup

By Maurie Backman – Nov 10, 2021 at 7:02AM

Key Points

  • Checking up on your investments is a good thing to do every so often.
  • It's an especially smart idea to dig in as the end of the year approaches.
  • You may be in a position to make some changes that set you up nicely for 2022.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Now's the time to dive into your portfolio and make strategic moves.

There are certain financial moves that may be on your radar as the end of 2021 approaches. You may, for example, be gearing up to see how much you've contributed to your 401(k) plan this year with the goal of maxing out while you can. Or, you may be interested in ramping up your charitable contributions to score a larger tax break when you file your 2021 return.

But one important financial move to add to your list is doing a year-end review of your investment portfolio. Here's why.

Person at computer with graph on screen.

Image source: Getty Images.

1. Your investment mix may not be as diverse as you think

Stock values can fluctuate in time. But those shifts in value can also create a scenario where your portfolio isn't as diverse as you'd like it to be. And so you're better off correcting for that before stock values start to decline.

Imagine your portfolio consisted of 25% tech stocks at the start of the year. If the value of those stocks rose so that they now comprise 45% of your portfolio, that's not necessarily a good thing, as it leaves you exposed in the event of a tech sector crash. And so shifting your investments around could make a lot of sense.

2. You may be able to strategically take a loss

It's generally not a good idea to dump a stock the second its value starts to drop. But if you own shares of a company that have been consistently losing value this year, now's a good time to look at selling.

When you take losses in your portfolio, you can use them to offset capital gains, thereby lowering your tax liability. And if you don't have gains to offset, you can lose your loss to offset some of your ordinary income for the year.

3. It could make sense to sell stocks at profit

This year, stock values are up on a whole. And if you're sitting on a carried loss from a previous tax year, it could make sense to take gains in your investment account now to minimize the tax hit.

Normally, it's a good idea to load up on quality stocks and hold them for many years. But if you have reason to believe that a given company's success is short-lived, then the "buy and hold" approach may no longer make sense in that specific scenario.

So, imagine you own a stock that's done remarkably well this year. It could make sense to take your profit and run, especially if you're unsure about that company's long-term financial viability. And if you're sitting on an existing loss, you won't have to worry about as large a tax bill -- especially if the stock you're looking to sell is one that you've held for at least a year and a day.

As you make plans to say goodbye to 2021, take some time to give your investments some extra attention. Doing a year-end checkup could put you in a solid position to kick off 2022 on a strong financial note.

The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.