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Time for some end of the year investor housekeeping

With little more than five weeks left in 2009, many investors are looking at their portfolios and considering some rebalancing.

With little more than five weeks left in 2009, many investors are looking at their portfolios and considering some rebalancing. Year-end portfolio housekeeping is often done by investors to identify tax loss selling opportunities, or just simply to adjust the portfolio to make sure that the original investment objectives and sector weightings are still intact.

The end of the year is also the time where most money managers and traders slow down their business transactions. The volume of trades done on the Toronto and the New York stock exchanges tend to be below normal levels, thus the market can be more susceptible to smaller daily transactions.

Markets tend to do well this time of year as the “Santa Claus Rally” begins to take effect and investor moods tend to become more upbeat and cheerful . The market, on light volume, should provide some small and gradual increases as those that want to enter the market or add more to current positions before year-end do so, driving up a thinly traded stock market both in Canada and the United States.

The TSX, the S&P and DOW have all had tremendous years so far. These indices are up more than 50% from their March lows. If you were an investor that overweighted certain sectors of the market to take advantage of this rally, you may want to do some rebalancing before the end of the year to get your portfolio back to a comfortable and appropriate sector mix for you. Sectors like banking, energy and technology have all rallied over and above what most were anticipating, thus causing an investor's portfolio to now be heavily weighted in some of these areas. The end of the year is always a good time to take some profit and rebalance if this is warranted.

In order for an investor to sell off some investments to create tax losses that can be written off against gains, they have to do an evaluation to see if an investment is worth selling or not. If an equity investment has very little chance of getting back to the break-even mark or even little chance for growth going forward, then this is something you may wish to sell. However, if there is a possibility that an investment can “come back” (to at least the break-even point), then perhaps it is not worth selling to accumulate the tax loss. Instead, you should be buying more of the investment to lower your average cost in preparation for future growth. This is what investors that hold investments outside of a registered plan should be considering.

Careful analysis should be done on your portfolio at this time so that an investor can keep and add more to the investments they believe will outperform in 2010 and sell off those that would be more valuable if sold for the capital loss. I recommend investors seek the help of an investment advisor to guide them through this process.

If you have any questions regarding the above article or are looking for an Investment Advisor to help you with your portfolio, please send me an email at asmall@dundeesecurities.com. I will be glad to speak with you!

Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.

 
 
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