May 21, 2024

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How To Improve Our Investment Portfolio


The global coronavirus pandemic caused both a financial and health crisis, with the U.S. being the worst affected. The financial world is currently recovering from the shock. Stocks have plunged in value, investments portfolios have lost cash, millions of people have lost their jobs and have used more of their retirement savings. There is hope that the economy will rebound with the announcement of the vaccine.

Re-evaluate Your Portfolio

Particularly for market investors, 2020 was a volatile year. Many cases showed that portfolios with stock holdings greater than the investor’s risk appetite have suffered significant losses in their portfolio value. Rebalancing your portfolio is a good idea to avoid these losses and make sure your portfolio is performing well in 2021. First, you need to determine how much money is being invested in your non-taxable and taxable accounts. This includes retirement savings plans. If you’re married, add your spouse’s balances to your accounts and determine how much is in cash, stocks, bonds, and other markets. For mutual funds and target-date funds, look into the details about their divisions across specific market securities. Once you have the exact allocation, calculate the percentage of each stock, bond, and cash in your portfolio. Next, assess if the holdings in each category match your risk profile and life stage. If you have 70% of your assets in shares and only 50% in risk appetite, it’s time to change your portfolio by selling the best performing stocks and redirecting the money to bonds or cash.

Increase Your Yield

It can be difficult to get a return on your investment in 2021. The Federal Reserve has set short-term interest rates at zero through 2023. Your portfolios could be losing value due to long-term interest rates that have not shown any improvement, and when combined with inflation. It is crucial to choose the right options to strike a balance between risk and yield in 2021. Corporate bonds can offer a minimum of 1.78% yield and a credit rating of at most double-B. ETFs (Exchange Traded Funds), which have a secure rating and certain government mortgage bonds, can be used to invest. These bonds help you balance volatility and provide a substantial yield. If you have money in taxable accounts, it is worth considering investing in municipal bonds, which generate interest income. Federal taxes are not applicable to these investments. Sometimes, interest earned from municipal bonds is exempted from local and state taxes.

Choose New-edge Companies

2021 will be the year for discovery. It is time to diversify your portfolio and include some new-age stocks due to the increasing digitization and advancements across industries. These companies could provide higher returns over the next few years. These companies can provide a good return for your portfolio if you invest some money in them. Reports indicate that genome sequencing, robotics, and artificial intelligence, as well as energy storage and blockchain technology, are some of the most lucrative industries in the future.

Reduce Investment Taxes

Due to the coronavirus pandemic, 2020 has seen investment portfolios disappear by millions. To bridge the income gap, you will be liable for taxes if you have sold high-performing assets from taxable accounts within the last year. The IRS will charge ordinary income tax rates of 10% to 37% for investments that are held for less than one year. The IRS will charge a long-term capital gain tax rate of between 0% to 23.8% for investments that are held longer than one year. Tax-loss harvesting is a way to reduce your 2021 tax bill. To offset capital gains and reduce your tax bill, you can sell low-performing securities at a loss. However, it is important to read the terms and conditions of tax harvesting in order to make sure you use this technique to your advantage. Retired persons should be extra cautious as capital gains may increase their Social Security benefit taxes.

Maximize Your Retirement Savings

You might consider putting your 2020 cash stash to good use in 2021 if you happen to have a lot of cash saved up for emergency situations. According to reports, even though there was a financial slump due to the COVID-19 pandemic, many people had large cash reserves in case of an emergency. You should invest any cash surplus into retirement savings plans prior to 2020. The IRS has set the 2020 contribution limits for retirement plans such as 401(k), 403(b), and others at $19,500. The IRS has allowed you to contribute $6,500 more if you’re 50 years old or older in 2020. These limits will remain the same in 2021. Excess cash can be deposited into an employer-sponsored plan. You should increase your contributions over the next year to reach the upper limit. You can also contribute any year-end bonuses or other stimulus to your retirement plan. If you don’t have an employer-sponsored plan such as a 401k, you can also invest in an IRA (Individual Retirement Account). You can contribute $6,000 to an IRA for 2020 and $7,000 if your age is 50 or older. Although you can still invest in your IRA up to April 15, 2021 (or earlier), the sooner you do it, the better.

Don’t Forget The RMDs

After you turn 72, RMDs (Required Minimum Distributions) are mandatory withdrawals from retirement savings accounts. RMD rules are applicable to all retirement savings accounts including IRAs and 401(k), Rollover IRAs, and others. Although the CARES Act 2020 allows retirees not to take their RMDs for this year (Required Minimum Distributions), you should still remember them for 2021. The IRS will impose a severe penalty if you fail to take your RMDs or miss the deadline (31 December each year after turning 72). The penalty could be as high as 50% of the amount that is not withdrawn from your retirement savings account. Your savings can be affected by tax penalties.

To Summarize

Investors can be optimistic that 2021 will bring them the best returns after a turbulent 2020. A professional financial advisor can help you make sure that you’re ready to maximize opportunities and increase the performance of your portfolio in the new year.

This post was written by All Seasons Wealth. At All Seasons Wealth, we provide expert advice and emphasize the importance of creating in-house portfolios to personalize your strategy for asset management, financial planning, and cash management. We utilize research and perform market analysis to provide you with a Financial advisor in Tampa. No matter your needs, we can work with you to develop a consulting solution tailored to you.

Any opinions are those of All Seasons Wealth and not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Past performance may not be indicative of future results.