3 Investing Moves to Make by the End of 2020
It’s fair to say that 2020 has been a miserable year for many of us, so much so that at this point, a lot of people are probably ready to wish it away. But for better or worse, we only have about 11 weeks to go before this tumultuous year comes to a close, and that means your window of opportunity is narrowing to make smart investing decisions that could set the stage for a much more positive 2021. Here, in fact, are a few investing moves you should prioritize before the new year arrives.
1. Max out your IRA or 401(k)
The more money you put into your retirement account, the more you stand to have on hand once your career ends. But that’s not the only reason to max out your IRA or 401(k) this year — there’s also a major tax break involved. If you fund a traditional IRA or 401(k), as opposed to a Roth savings plan, your money will go in on a pre-tax basis, thereby sparing a portion of your income from the IRS’s grasp.
For 2020, you can contribute up to $19,500 to a 401(k) if you’re under 50, or up to $6,000 to an IRA. If you’re 50 or older, these limits increase to $26,000 and $7,000, respectively.
Here’s what maxing out might mean from a tax perspective: If you put $19,500 into a 401(k) and you’re in the 24% tax bracket, you’ll shave $4,680 off of your tax bill. And that’s a lot of savings to enjoy. Of course, not everyone can afford to max out a 401(k), so if you can’t, do your best to contribute as much money as you can.
2. Check up on your asset allocation
The investments you have in your retirement plan or brokerage account shouldn’t just be random. Rather, they should align with a wealth-building strategy that you develop. If you have a healthy appetite for risk and are fairly young, you’ll probably want the bulk of your savings and investments in the stock market. If you’re closer to retirement age and aren’t so comfortable taking on risk, you’ll want to focus more on bonds, which are less volatile than stocks but still produce steady income.
Either way, now’s the time to check up on how your assets are allocated and make changes. Though the start of a new year won’t prevent you from shifting things around, fallout from the results of the upcoming election might, so take the opportunity to make some moves in your portfolio now — before the stock market potentially takes a turn for the worse.
3. Do a fee check
There are fees associated with investing your money, particularly if you’re housing your retirement savings in a 401(k). Now’s a good time to figure out what fees you’re paying and see if there’s a way to reduce them, before they eat away at your returns.
Your 401(k), for example, probably offers a selection of actively managed mutual funds and index funds for you to choose from. If you’re heavily invested in the former, you could be paying significant fees, whereas index funds charge much lower fees, due to the fact that they’re passively managed and aren’t as costly to run. You should also pay attention to the fees you’re being charged in your brokerage account and make changes, as necessary, to avoid throwing money away.
At this point in the year, many of us are ready to be done with 2020 and hope for a better 2021. But from a financial standpoint, you’ll have an easier time looking forward to the new year if you check the above items off your list, so be sure to make these moves a priority in the coming weeks.
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