You’ve heard us talk about offsetting your capital gains taxes before — but we’re going to keep talking about it, because it’s a huge tax savings strategy.
One of your top goals with your investments should be to delay paying taxes on portfolio gains for as long as you can.
Ultimately, you should push your capital gains taxes until you are retired (earning less money) and therefore you fall into a lower tax bracket.
How to know when it’s time to sell
Of course, we get excited if a certain stock (or fund) performs exceptionally well.
The problem occurs when your portfolio is thrown out of balance.
Let’s say you’re 60 years old and getting closer to retirement. You’ll likely have a more conservative approach to your portfolio, maybe splitting it up with a 50%/50% allocation of stocks/funds and bonds.
If the market has an excellent year, your stocks/funds may jump in value, but will push their percentage up to 70% of your portfolio.
That might be an uncomfortable position.
Your investment portfolio is now too reliant on the performance of stocks.
The goal of asset allocation is to balance high-return, high-volatility assets (stocks) and lower-return but more predictable assets (bonds).
Re-balance to your ideal risk-reward ratio
Now it’s time to sell some of your highest-performing investments and buy more of your lowest-performing investments.
This will help rebalance your portfolio, but also help offset your gains for the year.
It might feel hard to sell something that’s performing really well, but it’s the nature of the market to bounce back and forth. You’ll often hear, “Buy low, sell high.”
This is your chance to get back to that 50%-to-50% allocation of stocks/funds and bonds.
Speak with a Morgan & Associates today for expertly tailored advice that’s exclusive to your tax situation.