3 Brokerage Account Moves You Should Make Before the End of the Year
- It's good to check up on your investments and see how they're doing.
- You may also want to sell stocks strategically for the tax benefits involved.
It'll be good to check all of these off your list.
Investing in a brokerage account is a great way to grow wealth over time. While that money isn't as secure as it might be in a savings account -- namely, because your portfolio could lose value -- you might also snag a much higher return on your money over time.
But your brokerage account isn't something you should just set and forget. Here are three key moves you may want to make before 2022 comes to a close.
1. Check your account balance -- but don't panic if it's down
The stock market has had a really rough year. The Ukraine conflict, inflation, and interest rate hikes on the part of the Federal Reserve have all resulted in a world of volatility.
As such, a lot of investors are seeing year-to-date losses in their brokerage accounts, and you might be in the same boat. But it's a good idea to see what your balance looks like nonetheless. That way, you have an idea of what your assets look like in that account.
Keep in mind that there's no need to panic if your brokerage account balance is lower than expected. That's a common thing right now, and if you largely leave your investments alone (except when it makes sense to sell, which we'll talk about in a bit), you won't necessarily lose any money.
2. Make sure your investment mix is broad
Owning too many stocks within the same market segment is generally not a great idea. If that particular segment takes a hit, you could end up seeing extra losses in your portfolio.
Now's a good time to see how your investments are spread out. If you're too heavily invested in one segment of the market, you may want to make changes.
That said, it's generally not a great idea to rebalance a portfolio when the market is down. But if you end up taking losses strategically, it could free up cash you can use to branch out. And that leads to our final point…
3. Sell losing stocks it no longer makes sense to keep
Stocks are down on a whole right now. But you may have a few stocks in your brokerage account that have been losing money since the day you bought them. If that's the case, and you think those stocks won't ever regain their value, then it could pay to sell them at a loss before the end of the year.
If you take a loss in your brokerage account, you can use it to offset capital gains in that same account. And if you don't have any of those (which, let's face it, you may not, given the way the stock market has performed this year), you can use up to $3,000 in capital losses to offset ordinary income.
So, let's say you earn a $50,000 salary and sell stocks at a $3,000 loss. If you don't have gains to offset, you can exempt $3,000 of your earnings from taxes so the IRS is only taxing you on $47,000. Meanwhile, if you have more than $3,000 in losses and no gains, you can carry the rest of your loss forward and use it in a future tax year.
To be clear, though, the advice to take losses only applies to stocks that have underperformed for a long time. You shouldn't dump stocks that have taken a hit this year in accordance with the market's general performance.
The end of the year is a great time to assess your finances -- and that includes your investments. Make sure to check these important items off your list before 2022 comes to a close.
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