Here’s Your Year-End Portfolio Planning Checklist for 2023

2. Appropriate Asset Allocation

A key review question is whether your client’s target asset allocation is still appropriate for their situation. This is likely an ongoing issue that you revisit periodically with your clients. As you look at other potential year-end adjustments, such as tax or estate planning issues, this is an appropriate time to look at their asset allocation and to make any needed changes, either at year end or perhaps into the new year depending on the client’s tax situation or other considerations.

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3. Rebalancing

At various points throughout the year, you likely review your client’s asset allocation relative to the target allocation you have in place as part of your overall planning. It makes sense to look at rebalancing toward the end of the year, as that area generally overlaps with year-end tax planning.

As part of the rebalancing process, be sure you work with your client to rebalance across the range of accounts, which can include taxable accounts, IRAs, 401(k)s and others.

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4. Potential Changes to Holdings

Related to rebalancing is a review of clients’ portfolio holdings to see if any changes need to be made. This might involve reviewing the performance of individual stocks and bonds, mutual funds and ETFs against their benchmarks and your expectations. It might also involve a different approach in some cases.

For example, with interest rates where they are, it might make sense to move some of your client’s allocation to fixed income from mutual funds and ETFs to individual bonds, CDs and similar vehicles. Perhaps a bond ladder is appropriate for some or all fixed income allocation. And with rates where they are, money market funds might be a solid alternative at least in the near term.

In the case of stocks, some holdings might be pushing the upper end of the price range that you deem reasonable. Or if a client has a large position in an employer’s stock through stock-based compensation, this might be a good time to reduce that position to avoid an over-concentration in these shares.

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5. Tax-Loss harvesting

Your clients may have some unrealized losses in the taxable portion of their portfolio. As you look at any potential portfolio rebalancing or adjustments, it pays to consider doing some tax-loss harvesting. This can help offset any realized capital gains during the year and can also offset any projected capital gains distributions from mutual funds or ETFs.

Any losses in excess of realized gains can be used to offset other income up to $3,000 in the current year, and additional realized losses can be carried forward into subsequent tax years. It's important to be diligent about not violating the wash-sale rule here. Besides transactions in taxable accounts, be aware of any potential violations in a 401(k) or other retirement account.

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6. Tax-Gain harvesting

If your client’s income looks like it will be lower than normal this year, consider doing some tax-gain harvesting. This is the process of strategically realizing long-term capital gains in smaller chunks to reduce future taxes on these gains that can come with realizing all accumulated investment gains at one time. If your client’s income tends to fluctuate, tax-gain harvesting in years of lower-than-normal income can make strategic sense from a lifetime tax-planning perspective.

Also, by spreading the realization of gains over several years, your clients can potentially reduce overall taxes on the appreciated securities in their portfolio.

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7. Charitable Giving

The last portion of the year is often when clients think about charitable giving, and this can tie in nicely with year-end portfolio adjustments. Gifting appreciated securities such as individual stocks, mutual funds and ETFs can offer several benefits for your clients.

These gifts can provide for a tax deduction for clients who can itemize their deductions. Giving appreciated securities also offers the opportunity to not pay the capital gains that would accompany a sale of the securities.

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8. Asset Location

Asset location — where your clients should hold certain types of investment assets — generally toggles between a taxable investment account and a tax-advantaged retirement account like a traditional or Roth IRA, 401(k) or other employer-sponsored retirement account.

Investments in taxable accounts are taxed as income is incurred, while traditional retirement accounts are generally taxed when money is distributed and Roth accounts are tax-free as long as all requirements are met.

To the extent possible, aligning your clients’ investments to minimize taxes can help save lifetime taxes. For example, stocks with favorable long-term capital gains rates might be better held in taxable accounts, while interest-bearing bonds can be more tax-efficient if held in a retirement account.

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