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Spring Cleaning Your Investment Portfolio Thumbnail

Spring Cleaning Your Investment Portfolio


The tulips have bloomed, there are blossoms on the trees, and, if you’re like me, you’re scheduling an appointment with your doctor to be prescribed allergy medication. After being cooped up in our houses all winter long, we’re due for some spring cleaning. If you haven’t given your investment portfolio a tune-up lately, here are a few things to consider.

Tax Harvesting

As of writing this post, the stock market is in “correction” territory, meaning the market has fallen by nearly 20% from the start of the year. The drawdown has not been limited to just stocks either – bonds have fallen this year as well. Sometimes it can be advantageous to sell some of your losing positions in a brokerage account and realize a capital loss. This loss can be used to offset some of your other income. For instance, if you have wages of $50,000, and a capital loss of $3,000, you can reduce your income to $47,000 for income tax purposes. These capital losses can also be used to offset any capital gain income you have in the same year. One final note on capital losses – in order for the loss to be “allowed” by the IRS, you cannot repurchase the same investment within 30-days of selling it.

Speaking of capital gains, there may be a good reason to sell an investment in your taxable investment accounts. If you are holding an investment that has gone up in value and are considering selling it, make sure you know your cost basis (generally what you paid for the investment), and whether the gain would be treated as long-term or short-term. Generally speaking, short-term gains are taxed as ordinary income, while long-term gains are taxed at lower, favorable rates. In fact, if your taxable income (including any capital gain income) is below the 22% federal tax bracket, you may not owe any tax on your capital gain income! Selling an investment for a gain at a favorable rate may also provide you with an opportunity to “reset” your basis. If you’re able to sell your investment in the 0% capital gains tax bracket, you can then immediately repurchase the same investment and raise your cost basis for future tax minimization.

Buying Opportunities

When your positions fall in value, it could be a good opportunity to add to those positions, assuming you want to keep them in your investment portfolio. In effect, you’re purchasing them “on-sale” if you believe the price will recover. Take a look at the performance of each investment within your accounts and consider taking some gains off the table from the best performing investments and adding to your underperforming investments (this is known as rebalancing your portfolio).

If you’ve held bonds in your portfolio this year, you’ve no doubt felt the impact that rising rates have had. As interest rates have risen this year, the prices of bonds and bond funds have fallen. The silver lining here is that you can now find higher yielding interest rates on bond investments. For example, the 2-year US Treasury had a 0.2% yield in the fall of 2021. Now, in the spring of 2022, the yield has risen to more than 2.6%. While no one is getting rich holding treasuries that pay 2.6%, savers have been waiting for a very long time for a decent rate on their cash and bond investments.

One last spring cleaning tip for your stocks – more than half of the companies that make up the S&P 500 Index have fallen this year by 10%, including nearly 200 names that are down more than 20%. Depending on your outlook for some of these companies, there may be some buying opportunities for investors seeking good values. For example, if you’ve always wanted to own Apple stock but have been scared off by its high share price, you can buy it at about a 20% discount from where it started the year. Just know that with individual stocks, you’re taking on additional investment risk, and there’s never a guarantee that just because a stock’s price has fallen it will climb back up to its’ previous levels.

Important Disclosures

Dogwood Wealth Management, LLC (“Dogwood Wealth”) is a registered investment advisor. The content of this commentary is for informational and educational purposes only and is not intended to be investment advice. Dogwood Wealth provides investment advice on a personalized basis to clients, only after gaining a full understanding of the clients personal situation. Information contained herein is derived from third party sources, which are believed to be reliable, but are not audited by Dogwood Wealth. Information is a point in time and subject to change without notice.