Mid-Year Investment Review

401k, Finacial Planning, Investing, IRA, Saving Money, Stocks, Taxes

July 19, 2018

When was the last time you checked that your investments still reflected your long-term investment strategy? For instance, if your strategy for your retirement accounts is to have 70 percent of your money invested in stock index funds or ETFs and 30 percent in intermediate term Treasury bonds, do you in fact have a 70/30 split today?

I am asking, because if you haven’t rebalanced in a few years, the answer is no. You likely have a lot more invested in stocks. A 70/30 split five years ago is likely 80/20 today, because stocks have been on a great run.

We don’t know when stocks will hit a rough patch, and I am not suggesting you want to sell stocks in anticipation of a down turn. But if your current mix of stocks and bonds is too aggressive for your long-term goals, then you definitely should rebalance.

With money inside a 401(k) or Individual Retirement Account (IRA), rebalancing is easy. You owe no tax when you sell/exchange shares. There is no reason not to rebalance.

If you have taxable accounts, you need to be a bit more careful. Selling shares you have owned for at least a year, will allow you to pay tax on any gain at the long-term rate that is 15 percent for most of us. Or another strategy that avoids any tax bill is to stop adding money to your stock investments for a while and direct all your new investments to cash or bonds, to bring your overall allocation back into line with your long-term strategy.

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