1. Monitor estimated mutual fund distributions to minimize tax impact where possible.
Many mutual funds make their year-end capital gain distributions in November / December. We proactively monitor these distribution dates when investing cash in taxable accounts to avoid buying into a distribution and increasing taxable income.
2. Rebalance portfolios to manage risk levels.
We look at rebalancing portfolios back to the target blend throughout the year. Why? As the chart below illustrates, without periodic rebalancing, your portfolio would end up looking much different than planned. Stocks tend to have higher rates of return (and volatility) than bonds over time. Doing nothing could introduce a higher level of risk than desired.
Importance of Rebalancing (1998 – 2018)