What a year it has been. In spite of all the challenges, we here at Brighter hope you have happy holidays and extend best wishes for a joyous New Year! In addition to enjoying toasts and quality time with (a small group of) loved ones, the end of the year is a time to take an inventory of your finances, settle loose ends, and prepare your sustainable and impact investment strategy to position yourself for a strong year starting in January.
Need some help getting organized? Here is our checklist to square away your portfolio for 2020 and prepare your sustainable investment strategy for 2021. There’s still time to reach out to your Chartered SRI advisor if you have questions about any point on this checklist. Don’t have an advisor yet? Let me know, and I’ll get you started in the right direction.
Evaluate Your Investment Goals
Many people leave their sustainable investment strategy on autopilot for most of the year. There’s nothing wrong with that. The end of the year is a great time to check in with your investment goals and decide if you should stay the course or make an adjustment. Here’s what to focus on:
How Did My Strategy Perform?
If you have a long-term plan for your portfolio, how well did it perform compared to the plan? Are you on track to meet your goals, whether they be income, growth, or retirement planning? If your portfolio underperformed, did it do so under acceptable parameters, or is a new strategy called for?
Has Anything Changed?
Last year’s plan may not be appropriate anymore. Maybe you moved, got married, got divorced, had a child or grandchild, changed careers, or adopted a new vision for your life. Perhaps in light of the COVID-19 economic downturn, your strategy from last year is obsolete. A change may be appropriate.
What Are My Goals for Next Year?
If you didn’t have a sustainable and impact investment strategy for 2020—or even if you did, and it’s time for a change—set your vision for next year. What are your goals for income, growth, retirement? Is your current portfolio well-suited to that plan, or should adjustments be made? Are your current contributions well-suited to the plan, or should you consider scaling up or down?
Are You Supporting What Matters to You?
This is a big one. Here at Brighter, we believe your investments don’t have to be in conflict with your values—ever. We’re all about sustainable and impact investment strategy and socially responsible investing.
Did you know that 75% of Americans view curbing climate change as a “top priority?” Brighter makes eco-friendly capitalism a priority in our investment strategies. We’ve also refocused our efforts on investments that promote gender parity. Ask your advisor to help you align your investments with issues you care about.
In challenging times, charitable giving becomes more important than ever. In addition to the urge to give back, charitable giving can be advantageous at tax time… provided the donations are made by December 31. Donations on January 1, or later, will reflect on next year’s taxes, not this year’s taxes. Looking for places to give? Check out this New York Times opinion piece, “Choose a Gift That Changes Lives.”
Considerations to Apply to Your Charitable Giving:
- How Much to Give—If your income and expenses have not changed, it may be easy to zero in on the most advantageous donation. If everything has changed, an adjustment might be appropriate. Many people set a percentage of their income as their donation amount. If their income changes, their donation changes in step with it.
- Consider Donating Appreciated Stock—Donations of appreciated stock may be advantageous because you can write off the donation at the current value, rather than the basis, and avoid paying capital gains. Depreciated stock is less advantageous—there are no capital gains to offset. It may be better to sell them for tax-loss harvesting. You can always donate the cash after the tax-loss harvesting trade.
- Consider Donating from your IRA—If you are over the age of 70½, you can donate up to $100,000 per year from your IRA and the donation will be exempt from distribution income taxation.
- Consider Donating Instead of Gift-Giving—According to the National Environment Education Foundation, Americans produce 25% more household waste between Thanksgiving and Christmas, including over 38,000 miles of ribbon (enough to wrap the planet—with a bow!). As fun as it is to unwrap presents, consider giving digital gifts when possible or make a charitable donation to 501(c)3 nonprofit organizations instead.
Now is a good time to get organized for tax time. Many employees who transitioned to working from home during the COVID-19 pandemic may wonder if they are eligible for a home-office deduction. Unfortunately, this deduction is not available to employees.
Certain considerations of COVID-19 relief legislation may need to be taken into account. For example, relief legislation allowed employers to stop withholding payroll taxes … but unless the tax debt is forgiven by the next Congress, employers will have to repay those taxes in the first quarter of 2021. Employees should brace for an increased payroll tax burden just in case.
The end of the year is the time to rebalance your portfolio. What does it mean to rebalance a portfolio? Let’s say your investment strategy is 70/30 stocks and bonds. If your stocks gained significant value, your overall portfolio may have tilted to 75/25 in its distribution of value. It may be prudent to sell some stocks and buy more bonds to re-establish your 70/30 ratio and keep your strategy intact.
If your stocks lost value, consider selling some bonds and buying more stocks to re-establish your 70/30 ratio. This may seem counterintuitive—but it is the key to successful investing – buy low and sell high.
Stocks that lost value may also be candidates for tax-loss harvesting—selling at a loss to offset capital gains taxes on securities that have appreciated in value. And better yet, if any of those losses come from unsustainable investments, you can swap them for a more sustainable counterpart.
‘Tis the season to hone your strategy. If you have any questions about strategies for taxes and socially responsible investing in the New Year, don’t hesitate to reach out! There’s still time to put our heads together before the eggnog starts flowing!