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Time to Spring Clean Your Investment Portfolio

Road sign with text reading spring cleaning just ahead.

Over the years, it’s easy to accumulate different articles of clothing, until one day you might realize it’s an assortment of randomly acquired pieces. The same can hold true for your investment portfolio. You might purchase a stock or fund, have your employer-sponsored plan, and maybe an IRA on the side. But how are these investments working toward your long-term goals? You might find yourself with an accumulation of investments that may not have any rhyme or reason behind them.

Spring is a popular time to clean out and overhaul your spaces, so consider doing the same for your portfolio.

Review Your Investments and See if They Still Fit Your Life Stage

Just like you evaluate the clothing in your closet, think about why you own it and the value it brings you. Consider the role your investment plays in your portfolio, and if it’s helping you achieve your goals.

Your goals may change course as your life stage changes. Things like marriage, having children, or starting a new job. Because of these changes, it’s important to regularly review your investment objectives.

Rebalance Your Accounts

Rebalancing involves paying attention to your personal risk preferences and financial goals. If you’re comfortable with more risk, you might consider riskier investments. On the flip side, you might opt for less risk if you prefer a more conservative approach. Regardless of your preference, it’s important to adjust your portfolio as needed and review on an annual basis.

Look for Tax Optimization

You can add more value to your portfolio just by placing assets in the right account. Bonds have unusually high tax rates since their coupon payments are taxed as ordinary income. On the other hand, stock index funds you hold for a long-term are usually more tax efficient. Consider placing tax inefficient investments, like bonds, in your IRA or 401(k). In addition, putting tax efficient investments, like stock index funds, in a taxable brokerage account. This can help keep your tax bill low, and allow you to put any extra dollars you save toward investing.[1]

Review Your Retirement Plan

All your accounts should work together to help you reach your financial goals. How does your retirement plan fit into your investment strategy?

The main difference between 401(k)s and IRAs is that employers offer 401(k)s, but individuals open IRAs using brokers or banks. IRAs typically offer more investments; 401(k)s allow higher annual contributions.[2]

  • Rollover any old 401(k) accounts to manage your funds more easily.

    If you started a new job, you can transfer funds in your current account to another company. Or, if you have multiple 401(k) plans at previous employers, consider consolidating them into an IRA.
  • Check your current 401(k) contributions.

    Now is a good time to evaluate your current retirement contributions and make sure you’re still on track. The last day to contribute for the previous year, is the current year’s tax filing deadline.

Tip: It’s essential to set beneficiaries on all your retirement accounts, and you should review and update them in the event of divorce, death, or another life-changing event.

Check Your Bank Accounts

Do you have excess cash you could invest? Investing can provide another source of income, or help fund your retirement. Overall, investing can contribute to growing your wealth, allowing you to feel the impact of investing more. It’s important to consider your risk tolerance, and find a balance of potential gains and associated risk.

There’s many ways to invest – whether it’s safer choices like CDs or money markets, medium-risk options like corporate bonds, or higher-risk choices such as stock index funds. Investment options exist for many different comfort levels, allowing you to find investments to fit your risk profile.

Plan Your Savings Goals for Next Year

Expand your spring-cleaning into revisiting your goals and long-term plans. Are you saving and investing enough to keep on track with your retirement, and other goals? If your savings aren’t where you want them, consider these tips for getting your finances where you want them. Also, check out our handy calculator if you’re trying to save towards a goal, like a vehicle or new home.

Schedule an appointment with your financial advisor to review your spring-cleaning, and make sure your current investments align with your long-term goals.

Sources:

[1] 10 Spring Cleaning Tips for Your Portfolio, Investor Place

[2] IRA vs. 401(k): How to Choose, Nerd Wallet

How to give your investments a spring cleaning, MoneyLion

4 Steps to Spring-Clean Your Portfolio, U.S. Money News

9 best investments in 2021, Bankrate

Investing involves risk including the potential loss of principal. No investment strategy, including diversification, asset allocation and rebalancing, can guarantee a profit or protect against loss.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply. Interest income may be subject to the alternative minimum tax.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
Neither LPL Financial, nor its registered representatives, offer tax or legal advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.