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Random Words from our sponsor, Public.com
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Jason’s Random Words
Thanksgiving is behind us, and with the calendar flipped to December, there’s a nip in the air and many of us are fully in holiday season mode. Between the holiday parties, gift shopping, kid’s school events, holiday travel, not to to mention trying to meet end-of-year deadlines, few of us are putting any thought into our financial lives this month.
That’s what January is for, right? Money resolutions, starting the year off on the right foot and all that.
Sure, I think it’s useful to have a plan in place for each year as early as possible. But I have also started spending some time in December making sure the things I planned to do have actually happened, and to take advantage of the opportunity to reset some things, and get on track for anything that fell off.
Here are a few things that I take a look at every year in December.
401(k)/IRA contributions
Kid’s college savings contributions
Unrealized loss opportunities in taxable accounts
Rebalancing Stock/bond/cash ratios
While the first three are largely about tax optimization (reducing current-year taxable income, and future taxes on gains) but they’re also about making sure I’m on track on my contribution goals while I still have time to contribute more money. Of course, you can contribute to a traditional or Roth IRA for the 2024 tax year anytime before the federal tax filing deadline in April 2025, but not so for your workplace retirement account. Depending on where you live, you may have some state benefits for your 529 that you want to maximize before year-end, too.
Now is also a good time to take a look at tax opportunities in taxable brokerages. In particular, taking advantage of selling losers to realize tax losses. Most tax filers can offset both realized gains, as well as a certain amount of taxable income, within certain limits, by selling losers and realizing losses before year-end.
Additionally, as Jeff and I talked about in episode 131 of the podcast, rebalancing your portfolio is also a good idea, and doing it in December when you’re already potentially making changes in your account is a way to make the most of your time.
Of course, I suggest talking with your tax expert before doing it (the only person I can think of less qualified than me to give you tax advice is Jeff) and being mindful of the rules around tax losses based on your specific situation including filing status, income levels, etc. Also, keep your long-term financial goals in front of you, too. Don’t step over dollars to pick up a few pennies.
I know this stuff isn’t nearly as fun as finding your next big winning stock. But creating wealth is the goal, and far too often, we spend our time doing the things that reward our tricksome brain, but don’t add to our bottom line. Whether you want to think of it as the investing equivalent of eating your veggies or fundamental blocking and tackling, activities like this can be worth hundreds to even thousands of dollars per year in extra money.
Stretch that over an investing career, and it’s almost certainly a lot more money than you probably realize. Thank me later.
If you really want to make it worth the effort, give a re-listen to last year’s Reckless Predictions show while slogging through your account statements and paystubs. I got my prediction right, and Simon Erickson of 7Investing got both of his right as well. Jeff (predictably) and Brett and Ryan of Chit Chat Stocks got all of theirs wrong. Badly.
Trust me — it’s worth a listen whether to make fun of us all for basically being wrong about most things, or for the entertaining reminder how easy it is to make predictions, and how hard it is to get things right.
Jason
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