It’s the most wonderful time

Find out the steps investors should consider taking in the final weeks of 2018.

12 Dec 2018

By Mike Ryan, CFA, Chief Investment Officer Americas


Upon my return for our nontraditional Thanksgiving holiday in Ireland, I was left scrambling to catch up on all the things that need to be taken care of before the Christmas holidays are upon us and the current year draws to a conclusion.

Since I’m not the most well-organized person (which my wife Tracy and my assistant Belinda often commiserate over), I constantly need to put things into lists to make sure that I get most of the “big stuff” done. These task lists tend to fit within one of three broad categories: (1) personal; (2) professional; and (3) financial.

My personal priorities around this time of year mostly center around managing through the onslaught of holiday parties, shopping for gifts for family and friends (which, in the spirit of full disclosure, often runs right through to 6:00 p.m. on December 24) and the handling of travel arrangements for my daughter and son-in-law to get them under my roof for Christmas. On the professional side, the pre-holiday rush typically has me focusing most of my attention upon year-end performance evaluations for our team, addressing any open issues in terms of our current investment positioning, and initiating our “Year Ahead” communications so that our Advisors and clients are able to hit the ground running after the New Year.

Given how time-consuming these first two lists can be at this time of year for all of us, many will find themselves short of hours in the day and may therefore neglect the third category related to personal financial affairs. This is a big mistake. Because while making prudent financial and investment-related decisions is a year-round exercise, it can take on added importance at year-end.

Since the turning of the page in a calendar is not only a time for reflection but can also be a call to action, here are some of the steps that investors should consider taking during the last few precious weeks of 2018:

Portfolio rebalancing—Markets never move up or down in a perfectly synchronized manner. This means that asset allocations will invariably drift away from their initial weightings—which might have been optimally aligned to an individual‘s investment objectives and risk tolerance levels. Keep in mind that the right asset allocation is the most important determinant to successful investing. So periodic rebalancing is a necessary step to insure that the portfolio performs as it was originally intended.

Tax-loss harvesting—The periodic rebalancing of portfolio holdings can yield another opportunity for improving performance through tax-loss harvesting. Following years such as this marked by increased volatility and uneven returns, there are almost certain to be unrealized losses within most portfolios. Leveraging these losses effectively to defer taxes on realized gains can materially enhance portfolio performance. My colleague, Michael Crook, has done a great deal of work in this area and finds that tax-loss harvesting strategies alone can potentially add an additional 50 basis point in after-tax returns, on average. In an environment of more modest return expectations, this additional half point in gains should be exploited.

Philanthropic giving—In addition to “Black Friday” and “Cyber Monday,” the holiday season has also now given us “Giving Tuesday.” While the first two revolve around commercial activity, the last focuses purely upon philanthropic endeavors. Its emergence as a new holiday tradition serves as a helpful reminder that charitable giving can provide benefits to those who receive the donations … as well as those who make them. Prior to the 2018 Tax Cuts & Jobs Act, many families also enjoyed a secondary benefit from charitable giving: a tax deduction. Fewer families will itemize deductions under the new tax code, which means they also won’t receive a specific tax benefit for charitable giving. However, there are techniques, like using a donor-advised fund to “bundle” multiple years of donations into one year, that can be utilized to periodically reach the threshold for itemizing donations.

Financial planning—But perhaps the best way to ring in the new year is to set each of these initiatives in motion within the framework of a comprehensive financial plan. Thoughtful planning not only allows for a more effective deployment of personal assets relative to both current and future obligations, but can also ensure greater discipline during periods of heightened market stress.

So this year I’m going to make sure that my financial house is in order before I wrap things up for the holiday season. After all, I still have plenty of time left to shop until December 24 ...