Make Time for a Little Year-End Cleaning

Physician's Money DigestDecember15 2003
Volume 10
Issue 23

Despite the recent stock marketgains, many investors are stillholding on to stocks thathave not fully recovered. Thismay be a good time for you to put emotionsaside and evaluate portfolio holdingsto determine what, if any, actionyou should take to position your investmentsfor the future. For starters, makethe most of any losses you incurred.

As you evaluate your holdings, take agood look at how each of your stocks hasdone since you bought it. Consider eachstock's prospects for the future, alongwith the company's financial information.Then create a plan with guidelines thattake into account how each company isvalued now compared with when youbought it, and how it is expected to performover the next year. Stick with yourguidelines for each company, and sell thestocks that don't measure up.

Offset Gains and Losses

You're probably wondering aboutthe benefit of selling your stocks at aloss. When you do so, you have theopportunity to offset any gains. Forexample, if you incurred $2500 in lossesfrom the sale of your stock and soldanother stock for a $4000 gain, youoffset the gain with the loss, thus reducingyour tax bill. In this example, youwould only have to pay taxes on $1500of the gain, instead of the full $4000.

In addition, you can use up to$3000 in losses to reduce your taxableincome in a single year and you cancarry forward any further capital lossesto offset future capital gains and/orincome. Thus, selling at a loss couldreduce your overall tax bill.

Rebuild and Strengthen

Hopefully, you're feeling a bit betternow about selling some stocks that didnot perform as well as you had expected,but don't stop there. Now you havethe opportunity to rebuild your portfolioto take advantage of improvingmarket conditions.

When cleaning up your portfolio, it isimportant to remember some of the keyprinciples of investing, primarily diversifi-cation. A properly balanced portfolioshould include a number of different investmentsin a range of sectors.

Keep your goals in mind and check inwith your financial consultant at leastonce a year to make sure you're still onthe right path to achieving them. Alwaysconsult with tax and legal advisors foryour specific situation.

Joseph F. Lagowski is vice president,investments, and a financialconsultant with AG Edwards inHillsborough, NJ. He welcomesquestions or comments at 800-288-0901 or This article was provided by AGEdwards & Sons, Inc, member SIPC.

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