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    September 2013
    M T W T F S S
    « Aug   Oct »


    Plan Now for a Year-End Investment Review

    Guy Conger

    You might not enjoy sitting down to do year-end
    investment planning, but at least this fall you
    can make plans with greater certainty. For the
    last three years, investment planning has
    meant trying to anticipate possible changes in
    tax law; for tax year 2013 and beyond, you
    know for sure how income, capital gains, and
    qualifying dividends will be taxed. That gives
    you an opportunity to fine-tune your long-term
    planning, or to develop a plan if you’ve
    postponed doing so. Here are some factors to
    keep in mind as the year winds down.
    Consider harvesting your losses
    With tax rates settled, the question of whether
    to sell losing positions to generate capital
    losses that can potentially be used to offset
    capital gains or $3,000 of your ordinary income
    becomes a much more straightforward
    decision. That process is known as harvesting
    tax losses, and it could prove especially worth
    considering this year. The first half of the year
    produced strong gains for U.S. equities; even a
    mediocre second half could still have the
    potential to leave you with a higher tax bill than
    you had anticipated.
    To maximize your losses for tax purposes, you
    would sell shares that have lost the most, which
    would enable you to offset more gains. Unless
    you specify which shares of stock are to be
    sold, your broker will typically treat them as sold
    based on the FIFO (first in, first out) method,
    meaning that the first shares bought are
    considered to be the first shares sold. However,
    you can designate specific shares as the ones
    sold or direct your broker to use a different
    method, such as LIFO (last in, first out) or
    highest in, first out.
    Interest rates: bane or blessing?
    The Federal Reserve has said that if the
    economy continues to recover at its expected
    pace, it could raise its target Fed funds rate
    sometime in 2014. However, investors have
    been anticipating such an increase since early
    summer, when many bond mutual funds began
    seeing strong outflows from investors
    concerned that a rate increase could hurt the
    value of their holdings. As any consumer
    knows, lower demand for a product often
    means lower prices. And since bond prices
    move in the opposite direction from bond yields,
    yields on a variety of fixed-income investments
    have begun to rise. However, there also could
    be a silver lining for some investors. Higher
    yields could provide welcome relief for
    individuals who rely on their investments for
    income and have suffered from rock-bottom
    The Fed has said any rate decisions will
    depend on future economic data. However,
    now might be a good time to assess the value
    of any fixed-income investments you hold, and
    make sure you understand how your portfolio
    might respond to a future that could include
    higher interest rates. Many investors’ asset
    allocation strategies were likely developed
    when conditions generally favored bonds, as
    they have for much of the last 20 years. Though
    asset allocation alone can’t guarantee a profit
    or prevent the possibility of loss, make sure
    your asset allocation is still appropriate for your
    circumstances as well as the current investing
    climate. And don’t forget that other financial
    assets can be affected by potential future
    interest rate changes as well.
    Calculating cost basis for fixed-income
    The IRS had originally planned to require
    brokers to begin reporting the cost basis for any
    sales of bonds and options this year, as it
    already does for stocks and mutual funds. It
    has now postponed implementation of the
    requirements for bonds until January 1, 2014 to
    give financial institutions more time to test their
    reporting systems. However, don’t throw away
    your old records yet, especially if you’re
    considering selling any of your bond holdings.
    The cost basis reporting requirements will apply
    only to bond purchases and options granted or
    acquired on or after January 1, 2014, so you’ll
    still be responsible for calculating your cost
    basis for any bonds or options acquired before
    that date.

    The MONEY® Network