Three Financial Best Practices for Year-End 2023

Three Financial Best Practices for Year-End 2023

As December approaches, a narrow window remains for 2023 financial moves. Below, we’ve listed our favorite items worth considering to make the most of the remaining year.

1. Cash Reserves

 

With basic savings accounts currently offering 5%+ annual interest rates, your cash on hand is finally able to earn a nice little bit while it sits. Two thoughts here:

Mind Where You’ve Stashed Your Cash: If your spending money is still sitting in low- or no-interest accounts, consider taking advantage of the attractive rates available in basic money market accounts, or similar savings vehicles. Your cash savings typically includes money you intend to spend within the next year or so, as well as your emergency, “rainy day” reserves. At ShankerValleau, we have a high interest savings solution for excess cash to help our existing wealth advisory clients take advantage of the current interest rate environment.

Put Your Cash in Context: While current rates across many savings accounts are appealing, don’t let this distract you from your greater investment goals. Even at today’s higher rates, your cash reserves are eventually expected to lose their spending power in the face of inflation. Today’s rates don’t eliminate this issue … remember, inflation is also on the high side, so that 5% isn’t as amazing as it may seem. Once you’ve got your cash stashed in those high-interest savings accounts, we believe you’re better off allocating your remaining assets into your investment portfolio—and leaving the dollars there for pursuing your long game.

2. Review Your Portfolio

 

While we don’t advocate using your investment reserves to chase money market rates, there are still plenty of other actions you can take to maintain a tidy portfolio mix.

Rebalance: In 2023, relatively strong year-to-date stock returns may warrant rebalancing back to plan, especially if you can do so within your tax-sheltered accounts. At ShankerValleau, we rebalance portfolios under our management regularly, including at year-end.

Relocate: With your annual earnings coming into focus, you may wish to shift some of your investments from taxable to tax-sheltered accounts, such as traditional or Roth IRAs, HSAs, and 529 College Savings Plans. For some of these, you have until next April 15, 2024 to make your 2023 contributions. But you don’t have to wait if the assets are available today, and it otherwise makes tax-wise sense.

Revise: As you rebalance, relocate, or add new holdings according to plan, you may also be able to take advantage of the latest science-based Exchange Traded Fund (ETF) solutions. We’re not necessarily suggesting major overhauls, especially where embedded taxable gains may negate the benefits of a new offering. But as you’re reallocating or adding new assets anyway, it’s worth noting there may be new, potentially improved resources available. Throughout the last few years, ShankerValleau has introduced a number of ETFs to our portfolios.

Redirect: Year-end can also be a great time to redirect excess wealth toward personal or charitable giving. Whether directly or through a Donor Advised Fund, you can donate highly appreciated investments out of your taxable accounts and into worthy causes. You stand to reduce current and future taxes, and your recipients get to put the assets to work right away. In addition, for established wealth advisory clients, ShankerValleau does not charge a fee to manage donor advised funds.

3. Taxes

 

Speaking of taxes, there are always plenty of ways to manage your current and lifetime tax burdens—especially as your financial numbers and various tax-related deadlines come into focus toward year-end. For example:

RMDs and QCDs: Retirees and IRA inheritors should continue making any obligatory Required Minimum Distributions (RMDs) out of their IRAs and similar tax-sheltered accounts. With the 2022 Secure Act 2.0, the penalty for missing an RMD will no longer exceed 25% of any underpayment, rather than the former 50%. But even 25% is a painful penalty if you miss the December 31 deadline. If you’re charitably inclined, you may prefer to make a year-end Qualified Charitable Distribution (QCD), to offset or potentially eliminate your RMD burden.

Harvesting Losses: Depending on market conditions and your own portfolio, there may still be opportunities to perform some tax-loss harvesting in 2023, to offset current or future taxable gains from your account. For ShankerValleau taxable portfolios, we conduct tax loss harvesting year-round, when the opportunity presents itself.

While our list isn’t exhaustive, there are too many items to tackle in a single month. Which is why we implement year-round best practices at ShankerValleau, instead of saving it all for year-end. If you’re feeling overwhelmed, why not pick your favorite, most applicable best practice out of our short list of favorites? Take the time to think it through and save the rest for some other time. Better yet, contact us to get a jump start on 2024.