By: Chris Fuksman, CFP®
If your life has changed this year, it's worth reviewing your investment strategy to ensure it aligns with your current needs and goals. Markets shift, tax laws evolve, and your personal and financial situation may look very different from a year ago.
By taking the time to review your investments, you can ensure that they remain aligned with your goals and objectives. The end of the year presents the perfect opportunity for a final investment review to fine-tune your plan going into the New Year.
Changes in Your Financial Life
Your investment plan should always revolve around your financial objectives. Examples include saving for retirement, education funding, or purchasing a home. As life changes, so do your priorities.
Think about the shifts in your life over the past year. Maybe your family situation at home has evolved. Perhaps you've landed a higher-paying job or found yourself considering a step back from work. As you take stock of these changes, keep the following points in mind:
Have I reached my goals for the current year?
Have my short-term, mid-term, or long-term goals changed?
Do I need to adjust my timeline or expectations?
A shift in your financial goals warrants a review of your investment strategy. This review may lead to changes, such as adjustments to your current savings rate or even your entire portfolio allocation. Just as your personal changes may necessitate an investment review, so too do changes to the broader economy.
Changes in Economic Trends & Market Conditions
Market conditions almost always vary from year to year. Economic indicators and current events, such as employment trends, politics, and global crises, also significantly impact investment performance on a daily basis.
While you should never overhaul your investment strategy in response to short-term noise, it's essential to review your plan and determine whether current conditions necessitate any strategic adjustments. For example:
Changes in interest rates may influence bond performance and borrowing costs.
Shifts in economic growth may affect the outlook for stocks and other asset classes.
Using these insights can help you fine-tune and stay on track with your long-term investment plan. Additionally, your feelings during periods of volatility may also signal a need for a review of your risk tolerance. Moreover, the evolution of tax laws and their implications are other key elements to consider when reviewing your investment strategy.
Changes in the Tax Environment
Taxes can significantly impact your net returns and should be a core part of your annual financial planning. As tax laws evolve, whether through adjustments to income brackets, contribution limits, or deductions, it's crucial to understand how these changes can affect your investment strategy for the year ahead.
Specific updates will create opportunities to save more efficiently, reduce your tax burden, or optimize the vehicles you already use to invest. As you review your portfolio, it may help to keep the following in mind:
Retirement account contribution limits may have increased, allowing you to invest more on a tax-advantaged basis.
Recent changes to deduction limits may impact how you plan for specific items, such as charitable giving or Roth conversions.
Capital gain rules will determine whether it is advantageous to realize any gains or harvest any losses before the end of the year.
Required minimum distribution updates, especially for those who have inherited IRAs after the passage of the Secure Act 2.0, can have a significant impact on tax planning for individuals, such as retirees.
Reviewing how adjustments in the tax environment apply to your situation can help ensure you minimize taxes where possible and maximize the tax efficiency of your investments. In addition, it's also important to remember not to let taxes be the reason you don't make changes to your investment strategy. As the old saying goes, "don't let the tax tail wag the investment dog." In other words, you shouldn't hold onto investments solely to avoid taxes. If an investment has performed well, it might make sense to realize gains and rebalance your portfolio as part of maintaining a disciplined approach.
Rebalance Your Portfolio
Over time, investment gains and losses can cause your portfolio allocations to deviate from their originally intended targets. For example, if stocks had a strong year, they may now represent a larger portion of your portfolio, increasing your risk exposure. Periodic rebalancing ensures you maintain the appropriate mix of bonds, stocks, and other investments.
While changes should not be made every time you review your portfolio, rebalancing becomes an essential tool once allocations drift beyond preset thresholds. This disciplined approach preserves diversification, allowing your risk level to remain aligned with your financial goals and overall long-term investment strategy.
Final Tips
A successful investment strategy doesn't require reinventing the wheel. It's essential to keep things simple and intentional. Use this time at the end of the year to check in on the fundamentals of your investment plan and keep the following in mind:
Assess your fees and investment costs
Reevaluate your risk tolerance
Update your savings and contribution plans.
Small, consistent adjustments made each year can compound into meaningful progress over time. By staying disciplined and proactive, you set yourself up for a stronger financial future and will enter the New Year with clarity, confidence, and momentum.
Chris Fuksman is a CERTIFIED FINANCIAL PLANNER® at HIGHLAND Financial Advisors, a Fee-Only fiduciary wealth advisory firm that offers comprehensive financial planning, retirement planning, and investment management. Chris graduated from Providence College with a degree in Business Economics in 2019 and successfully passed the CFP® national exam in 2024. As a Senior Analyst at HIGHLAND Financial Advisors, Chris works on client trading and assists with financial planning research, preparation, and analysis. Chris enjoys volunteering at his local animal rescue, traveling, and watching European soccer in his free time.
The foregoing content reflects the opinions of Highland Financial Advisors, LLC, and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past.
The above article was written with the assistance of artificial intelligence (AI).