After a very stable, upward moving 2017, this year has seen lots of volatility. First, in January/February and then after making new highs at the end of the summer, volatility returned with new force in the fourth quarter. Bonds have fallen as rates have risen, giving little to no safe haven for many investors. Finally, the tax bill that passed last December delivers additional uncertainty for many as we head into 2019. However, as we head into 2019, I wanted to briefly go over the things you can still do this year and make sure you are prepared for the year to come.
1. Sell investments with losses
With many different stocks and asset classes having taken a hit this year, your portfolio may have taxable losses available to mitigate your tax bill. Selling those positions now may allow you to take up to $3,000 in losses against your income for tax purposes. Further, you could take more losses by netting them against other capital gains. However, make sure you do these properly. Do not buy the substantially same investment for 31 days, otherwise, your loss will be canceled. If you have more than $3,000 in losses, they can be carried forward against future gains.
2. Re-balance Your Portfolio
Along with realizing losses, the markets look to be headed into an uncertain 2019. Make sure that the level of risk you are taking in your investments is comfortable and consistent with your long-term objectives. Are you too concentrated in one asset class or another? This is as good a time as any to make those changes.
3. Get Divorced
If you are a high-income individual and are planning a divorce where you will have to pay alimony, completing the legal divorce by the end of the year will mean that your alimony payments are tax deductible to you. In 2019, they will not be deductible, this comes out of last year’s Tax Cut and Jobs Act (TCJA). Of course, if you are a lower income individual and will receive alimony, it makes sense to try to wait.
4. Build up your emergency fund
According to a Federal Reserve survey, 40% of Americans do not have $400 in case of emergency without borrowing. Even fewer have the recommended three to six months of expenses in cash waiting around. If the economy does fall into recession and job loss occurs, you may need significantly more cash to get through the difficulty as you look for your next job opportunity.
5. Pay off debts
If economic troubles are ahead, you want to face them with minimum debt so that it will hurt your long-term prospects less if you need to borrow money. It is never a good idea to hold high-interest debt like credit cards; it’s throwing money out the window. Keep your holiday spending low, pay off current balances and start 2019 in a better financial position.
These are the opinions of Russell D. Rivera and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.