Year-End Financial Checklist: Reviewing and Optimizing Your Investments

Essential Steps to Review and Optimize Your Investments Before the Year Ends

As the year comes to a close, it’s the perfect time to take a step back and assess your financial health. For investors, this means reviewing and optimizing your portfolio to ensure it aligns with your goals, risk tolerance, and the changing economic landscape. A proactive year-end review not only sets the stage for financial success in the coming year but also helps you avoid unnecessary stress from misaligned strategies.

This comprehensive guide will walk you through the essential steps to evaluate your portfolio, optimize your investments, and ensure everything aligns with your financial goals.

1. Revisit Your Financial Goals

Your financial goals serve as the compass guiding your investment strategy. A year-end review starts with asking yourself:

• Have my goals or circumstances changed this year?
• Am I still on track to achieve these goals?
• Are there new milestones, such as a home purchase, education savings, or retirement, to consider?

Action Steps:

• Update your priorities: Reflect on life events like a job change, a new child, or nearing retirement, which might shift your goals.
• Adjust timelines: If a goal like buying a house has moved closer, consider shifting to more conservative investments to preserve capital. Conversely, if you’ve deferred a goal, explore higher-risk options for potential growth.

2. Assess Portfolio Performance

Your portfolio’s performance over the past year provides valuable insights into whether your investments are on track. However, it’s important to go beyond surface-level returns.

Action Steps:

• Compare against benchmarks: Use market indices like the S&P 500 for stocks or Bloomberg’s Aggregate Bond Index for bonds to gauge your portfolio’s performance.
• Identify underperforming assets: Determine if poor performance is due to temporary market conditions, sector challenges, or fundamental issues with an investment.
• Decide on changes: For consistently underperforming investments, consider replacing them with better-performing alternatives. Be cautious of making rash decisions based on short-term market fluctuations.

A Word of Caution: People often complain that the S&P 500 returned 20% this year and their portfolio only returned 15%. Often, they compare apples to oranges. It is likely that their portfolio is diversified and will underperform the S&P 500 in good years but in turn will overperform the market in bad years. So, as you review your accounts, make sure you compare the proper markets to your portfolio.

If assessing your portfolios is overwhelming or too time consuming, we at Intermountain Wealth Management would be happy to conduct a complimentary review on your behalf. Simply email jmurray@intmtnwealthmgt.com and request the complimentary account review.

3. Check Your Asset Allocation

Asset allocation—the mix of stocks, bonds, and other assets in your portfolio—is critical for managing risk and achieving your financial goals. Over time, market performance can cause your allocation to drift, increasing your exposure to certain risks.

Action Steps:

• Review allocation: Check if your current asset mix aligns with your target allocation.
• Rebalance: If necessary, sell overperforming assets and reinvest in underperforming ones to restore balance. For example, if stocks have outperformed, you may need to sell some equities and buy more bonds or cash equivalents.
• Keep it periodic: Rebalancing once a year or after significant market moves is generally sufficient.

Related post: Tax-Loss Harvesting: A Simple End of Year Strategy to Save on Taxes

4. Align Investments with Your Risk Tolerance

Ensuring your investments match your risk tolerance is crucial to avoiding unnecessary stress and making informed decisions during volatile markets. Misaligned risk can lead to emotional, and often detrimental, investment decisions.

Understanding Risk Tolerance:

Risk tolerance has two components:

• Risk capacity: Your financial ability to withstand losses.
• Risk willingness: Your emotional comfort with investment volatility.

Many large investment institutions will have risk tolerance questionnaires available when you open accounts. It could be smart to have these results compared to other questionnaires from other places. It is smart to retest yourself every several years, especially as you get close to retirement.

Determining your risk tolerance can be difficult to do on your own. Here at Intermountain Wealth Management, we have a simple and effective risk tolerance questionnaire that you can use to determine a proper risk tolerance. Simply email jmurray@intmtnwealthmgt.com and request the complimentary risk tolerance questionnaire.

A Case Study: The Casual Stock Picker

Jack, a 35-year-old casual investor, enjoys picking stocks in trending sectors, particularly volatile tech startups. However, his risk tolerance is moderate—he prefers steady growth and gets anxious during market downturns.

When the tech sector slumps, Jack’s portfolio drops by 30%. Overwhelmed, he sells at a loss, locking in his losses instead of riding out the downturn.

Key Takeaway:
Jack’s portfolio didn’t align with his risk tolerance, leading to unnecessary stress and financial loss. If he had diversified his investments into a mix of growth-oriented and stable assets, he could have avoided such dramatic swings and stayed invested for long-term gains.

5. Optimize for Tax Efficiency

Tax planning is a vital part of your year-end portfolio review. Small adjustments now can lead to significant savings come tax season.

Action Steps:

• Tax-loss harvesting: Offset gains by selling investments that have decreased in value. This can reduce your taxable income and save money.
• Avoid the wash-sale rule: Don’t repurchase the same or a similar investment within 30 days of selling it for a loss.
• Maximize contributions: Contribute to tax-advantaged accounts like IRAs, 401(k)s, or Health Savings Accounts (HSAs) before the deadline to reduce taxable income and grow your wealth tax-deferred or tax-free.

6. Plan for the Future

A forward-looking mindset ensures your portfolio is ready for upcoming challenges and opportunities.

Action Steps:

• Monitor emerging trends: Consider sectors with strong growth potential, such as renewable energy, artificial intelligence, or healthcare.
• Prepare for risks: Factor in inflation, interest rate changes, and geopolitical events. You might include inflation-protected securities or diversify internationally to hedge against these risks.
• Set clear goals: Identify what you want to achieve financially in the next year, such as increasing savings, paying off debt, or reaching a new milestone.

Final Thoughts: Preparing for the New Year

A year-end investment review is not just about checking boxes—it’s about ensuring your financial life aligns with your goals, risk tolerance, and the broader economic landscape. By revisiting your goals, assessing performance, rebalancing your portfolio, and focusing on tax efficiency, you can build a solid foundation for financial success.

Investing is a long-term journey, but periodic check-ins like these ensure you’re moving in the right direction. If you’re unsure about your portfolio’s alignment or need help navigating complex decisions, consider consulting a financial advisor to guide you.

Start your review today—your future self will thank you!

Intermountain Wealth Management is a Registered Investment Adviser (RIA). The company manages several fee-based portfolios comprising various equity and fixed-income investments that may include mutual funds and exchange traded funds.  This is not a prospectus or an offer to sell any security.  Please read the prospectus of any investment before you invest. Information included here is intended for education and information purposes only. The S&P 500 Index represented cannot be directly purchased.

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