Investing in a brokerage account is a great way to turn the money you don’t use right away into more. These days, many brokerage accounts offer a range of investment options, from stocks to mutual funds to cryptocurrency.
If you have money in a brokerage account, it is important to check it several times a year. In fact, now is a great time to take a closer look at your brokerage account. Here are three movements to focus on in particular.
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1. Check your investment mix
It is important to maintain a diverse mix of investments in your brokerage account. If you are too invested in a single segment of the market and that segment takes a hit, you could end up losing money if you have to sell. Having a diversified portfolio can also facilitate wealth growth over time, as you venture into different industries, each of which has the potential to gain value.
But sometimes you can start with a diverse mix of investments and end up with a less diverse one. How? ‘Or’ What? Since the value of stocks fluctuates over time, it is possible that the stocks in your portfolio will gain or lose in value to the point that your investments are less balanced.
Here is an example. Suppose you started with a portfolio of 20% tech stocks. If these tech stocks gain a lot of value in any given year, they could end up making up 50% of your portfolio on time.
Now you might think that’s not a bad thing as it means this segment has seen huge growth. But it also means that your portfolio is now heavily invested in a single segment, which can be risky. In this case, you would want to move some investments for a more even mixture. It’s a good thing to have in your wallet before the end of the year.
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2. Check if the stocks you hold are underperforming
When the stock market as a whole is going through a rough patch, it is possible that all of your stocks will lose value. If the stock market is doing well and only one stock in your portfolio is losing money, that could be a red flag that it’s time to get rid of that specific investment. If you are planning to sell a stock at a loss, it is best to do so before the end of 2021.
Why? Investment losses in a brokerage account can help offset investment gains. If you sell a stock and incur a loss of $ 1,000, but you also sell a stock and make a profit of $ 1,000, you would normally have to pay IRS taxes on that profit. But since that $ 1,000 loss may offset your gain, you don’t owe the IRS anything.
In addition, if you have no gain in your brokerage account, you can use up to $ 3,000 in investment losses each year to offset regular income. If you sell your investment losing this year, you will be able to offset some of that year’s income. Wait until 2022 to incur this loss, and you will have to wait to take advantage of this tax break.
3. See if there is a better account for you.
If your brokerage account has expensive fees, such as fees to complete transactions or inactivity fees for not transacting, maybe it’s time to move your money somewhere else. There are plenty of brokerage options out there that don’t impose these nagging fees, so take some time to do your research if the fees are costing you money.
The end of the year is a great time to take stock, and that includes digging into your brokerage account. It pays to take these steps in the coming weeks so that you can start 2022 on a high note.
