Time flies, and before you know it, another year is almost over.
Even as we look forward to a better 2022, there are a few actions we can take before the turn of the year to improve our financial well-being.
These actions can not only help you to align your investment portfolio for the start of a fresh year but can also help you to save on taxes.
Without further ado, let’s take a look at three actions you should take before the year ends.
One important area you should not overlook is your Supplementary Retirement Scheme (SRS) account.
Similar to the CPF scheme, the SRS is designed to assist Singaporeans to save more for their old age and complements the CPF.
Each year, you can contribute a maximum of S$15,300 to your SRS account if you are a citizen or permanent resident.
The annual contribution cap is S$35,700 for foreigners, and if you miss the cut off by the end of the year, then the cap will apply again for 2022.
The benefit of SRS contributions is to allow you to save on income taxes.
All contributions are eligible for tax relief but are subject to a personal income tax relief of S$80,000 in total (i.e. inclusive of other reliefs).
Another useful aspect of the SRS is that you can invest the money within to generate higher returns than the base interest rate offered by the banks.
Selling off poor performers
The end of the year is also a good time to do some housekeeping.
This annual spring-cleaning exercise forces you to review each position to decide if it should remain in the portfolio, or not.
Remember to review the business behind each ticker and not base your decisions solely on the share price.
Selling an investment just because it has fallen below your purchase price may be a decision you regret later, especially if there was nothing wrong with the business, to begin with.
Remember that volatility is an essential aspect of the stock market and that even well-run, reputable firms endure frequent swings in share price due to changes in sentiment.
What you should be monitoring is the health of the business, the company’s plans for the future, and what management is doing to grow it.
If the business is facing an intractable problem that is likely to persist for months or even years, it may be a good time to divest it and then reinvest the money into a more promising candidate.
This portfolio review may sometimes feel painful as we are forced to confront our mistakes, but being human, it’s more important to learn from these mistakes as no one can be perfect.
I find it therapeutic to sell off my losers and to channel the money into a more promising candidate.
It helps to start the New Year on a cleaner slate filled with optimism.
Reviewing missed opportunities
Going through your investment portfolio with a fine-toothed comb is a great idea.
But what many investors may not do is to review missed opportunities during the year.
If you want to become a sharper and better investor, then you should also think of investments you have missed out on but which later performed well.
It may sound like a thought exercise, but it helps crystallise just why we avoid some investments while purchasing others.
In fact, I classify such moves as investment mistakes too, but luckily, they are the kind that does not result in you losing any money.
Mistakes of commission are the more common kind where you purchase a stock that subsequently performs badly.
However, mistakes of omission represent the stocks you did not buy which subsequently turned out to be winners.
What we lose out on is an opportunity cost as the money could have been better deployed there.
Going through the list of missed opportunities helps to prepare you for the future as you will think twice about standing aside if such opportunities present themselves again.
And as a Smart Investor, your goal should always be to continuously improve your investment process.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.