The holiday season is often associated with high spending, but it’s also an ideal time for investors to reassess their portfolios and ensure their finances are on track. Here are some useful tips to consider before heading into the December holidays.
Review and rebalance your portfolio
Before the holidays, take the time to review your investment portfolio. Markets may have fluctuated throughout the year, which may result in asset allocations drifting from their initial intended target percentages. Rebalancing your portfolio can help you maintain the correct balance of risk and return, ensuring that your investments are aligned with your long-term financial goals. For instance, if your equity allocation has increased due to market gains, you might want to shift some of that into safer assets like bonds to maintain your desired risk tolerance.
Set a holiday budget
It is easy to overspend during the festive season, but setting a clear budget can help you avoid financial stress. Consider what you will need for gifts, travel, and other holiday expenses, and try to be realistic about the costs. Avoid dipping into your investments to cover these costs, instead, plan ahead by saving throughout the year, and if you have to use credit, try to pay it off as soon as possible to avoid accruing high interest.
Think about the upcoming tax year end
Although the tax year end is only in February, it is smart to start planning and thinking about it as the calendar year is also coming to an end. One of the things to consider as an investor is whether there are any tax losses that can be realised to offset gains which can reduce your taxable income, which in turn can lead to significant savings on tax payable.
Check for year-end contributions
If you have a tax-free savings account (TFSA) or a retirement annuity (RA), it is advised to make sure that you will be maximising your contributions for the tax year. You can contribute up to 27.5% of your annual income to an RA (up to R350,000) and up to R36,000 per year to a TFSA. Contributions to these products offer tax advantages, so making the most of them before year-end could help you grow your savings tax-efficiently.
Plan for 2024 goals
The holidays are also a good time to reflect on your long-term financial objectives. Whether you are saving for a home, education, or retirement, set clear, actionable goals for the upcoming year. Evaluate your current savings rate, consider any life changes that may affect your financial plans, and ensure that your investments are geared toward meeting those future needs.
Be aware of market volatility
The festive season is often a quieter period for the financial markets, but that doesn’t mean it is free from volatility. External factors like economic reports, geopolitical events, or even changes in consumer spending can affect market conditions. It is wise to avoid impulsive investment decisions during this time. If markets dip, focus on long-term goals rather than making short-term changes that could hurt your portfolio.
Emergency fund review
Before you splurge on holiday purchases, ensure your emergency fund is adequately funded. Experts often recommend having three to six months of living expenses saved in a liquid, easily accessible account. This fund is essential in case of unexpected financial emergencies like medical bills or car repairs, especially since holiday spending can add pressure to your finances.
Consider holiday deals with caution
While many retailers offer discounts during the holiday season, approach them cautiously. Just because something is on sale doesn’t mean it is worth the purchase. Ask yourself whether the product is a necessity or whether the money could be better used elsewhere, perhaps for investing or saving.
The December holidays are a time for enjoyment, but it is also a period when financial discipline is key and an ideal time to review your portfolio. Thoughtful planning during this season can help you avoid financial stress and keep you on track to meet your long-term goals.