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  • Writer's pictureMalissa Marshall, CFP®, MS Tax, EA

Year End Portfolio Management: Checklist

Updated: Aug 24, 2023

I wanted to outline some of the steps that I go through in managing a client's portfolio at a very high level, for two reasons. First, I do a lot of this work in the background – because our planning meetings are so heavily focused on forward-looking planning, and concrete action steps that need to be taken over the next few months, I rarely spend time discussing all the work I've done behind the scenes. And, generally, clients delegate this work to me in the first place so they don't have to think about it.

Second, I also have a lot of clients who still manage their own investments, so this list should be helpful for you to double check that you are covering all the bases in this last week of the year, and that you are managing your portfolio as effectively and tax-efficiently as possible.

Big Picture – Seeing the Forest Before the Trees

Proper portfolio management can never take place in a vacuum! I always start from a deep understanding of a client's current financial situation, goals, and any changes expected over the next couple of years.

• Do you have sufficient funds set aside in savings, as an emergency fund? Aim for at least 3-6 months of expenses; more if you are self-employed.

• Do you anticipate any unusual cash flows in the next year or two – either additional income (inheritance, equity vesting, liquidity event, etc.) or excessive expenses (new roof, college costs, etc.)? Make sure you have sufficient cash set aside for such expenses, and/or a plan to put any additional income to use quickly – as well as setting aside a provision for paying any resulting income taxes.

• Are you monitoring the costs of the individual mutual funds that you purchase, to avoid front- and back-end charges (frequently 4.5-5.75% of the cost of the investment), and to minimize the average annual fees they charge?

• Do you monitor your accounts in the aggregate to ensure that your holdings are properly diversified, for example by ensuring that no individual stock is worth more than 5% of the total value of your portfolio, which frequently happens for participants in equity compensation plans? Or, if that is the case, do you have a plan for selling the shares in a disciplined, tax-efficient manner?

Portfolio Management – High Level

• Has your risk tolerance, and/or your capacity to withstand risk (aka volatility) within your portfolio, changed?

• If you have an Investment Policy Statement (IPS), have you reviewed it recently to ensure it is consistent with your current intentions and financial situation? And have you recently reviewed your portfolio to ensure it is in line with your intentions and cash flow needs?

• Is your overall portfolio allocated at a macro level according to your risk tolerance, risk capacity, and preferences ? If, for example, you've previously allocated 60% to equities and 40% to bonds, and haven't rebalanced recently, the market could've significantly affected the allocation, making your portfolio more or less risky than you've intended.

• If you've been more selective and made different macro allocations relative to account type (taxable vs. tax deferred vs. tax free), such as 80% equities in your Roth IRA account to reflect the longer investment horizon, or 40% equities in your taxable accounts to reflect your intermediate term cash flow needs, are those still on track?

Taxable Accounts

• When you sell stocks and realize capital gains, do you make sure that they've been held long-term first (taxed at 0-20% Federal tax rate, vs. up to 37% for short-term gains)? This is doubly important for some states – Massachusetts, for example, charges 12% tax rate for short-term gains (i.e. for stocks held for less than a year), vs. 5% for long-term gains – more than twice as much tax! Combined, at the highest marginal tax brackets, the tax on $10,000 of short-term capital gains would be $2,400 higher for a MA resident than if the shares had been held for more than a year before they were sold.

• Does it make sense for you to proactively harvest either capital gains or capital losses, given your overall financial situation and your tax rate for the current year? Doing so selectively (taking gains in lower income years and taking losses in higher income years) can help to smooth out your effective tax rates and may result in lower lifetime taxes.

• Do you have highly appreciated stocks held long term (ESPPs in particular are great), AND charitable goals, AND are in an extraordinarily high tax bracket this year, such that a contribution of those stocks to a Donor-Advised Fund might make good financial sense?

• Do you have sufficient funds set aside in cash and short-term bond funds to cover any distributions you'll need to make within the next couple of years (such as down payment for a home, buying a car, or paying off a mortgage) in cash and short-term bond funds, to minimize the possibility that you'll need to sell equities in a down market environment?

Retirement Accounts

• If you are still working, have you made the maximum allowable contributions to your retirement accounts?

• If you are retired and over age 72, have you taken your Required Minimum Distributions (RMDs) for the year?

• If you are required to to take RMDs, have you estimated your tax liability, and had sufficient taxes withheld so that you don't need to make quarterly estimated tax payments, or will have a balance due next April 15?

• If you are required to take RMDs and make regular charitable contributions, have you requested a checkbook from your financial advisor so that you can make Qualified Charitable Distributions (QCDs) by writing checks directly to the charities of your choice? For many, this is a far more tax-efficient means of giving – meaning that you'll have even more to fund your charitable and other goals.

• Given the current market volatility in particular, do you have at least 3-5 years worth of RMDs in cash and short-term bond funds, to minimize the possibility that you'll need to sell equities in a down market environment?


Image by bady abbas

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