3 Money Moves You Must Make BEFORE 2026

Summary

In this holiday video, Joseph from Bow Tai Nation shares crucial year-end financial tips for 2026, focusing on tax strategies, portfolio management, and investment options. He explains how to manage short-term and long-term capital gains to reduce your tax bill, emphasizing the importance of understanding tax implications on stock and option trades. Joseph also discusses strategies for handling cash in a portfolio, recommending bond funds and gradual investment methods to optimize returns. He encourages diversifying into sectors like real estate and consumer staples to protect against market volatility and concludes with retirement planning advice using a simple investment calculator.

Takeaways

• 😀 It's the last week to lower your 2026 tax bill by reviewing your capital gains and losses.
• 😀 Short-term capital gains (stocks held for less than a year) are taxed at a higher rate (up to 37%) compared to long-term gains (held for over a year), which are taxed at 15-20%.
• 😀 You can offset capital gains with capital losses—long-term gains can cancel out short-term losses and vice versa.
• 😀 For options trading, the holding period determines tax treatment—exercise of options doesn't trigger taxes until the stock is sold.
• 😀 If you have options in your portfolio, be mindful of the tax impact for next year, especially with expiration dates and gains/losses.
• 😀 Many investors hold significant amounts of cash in their portfolios, but there's no perfect time to invest. It's important to keep cash levels below 10% for optimal growth.
• 😀 For cash allocations, bond funds (ETFs) are a safer alternative to savings accounts or money markets, offering better returns, such as the iShares 20-Year Treasury Bond ETF (TLT) with a 4.3% yield.
• 😀 Bond ETFs like Vanguard Short-Term Bond Index Fund (BSV) and Vanguard Total Bond Market Fund (BND) are good options for safe, diversified investments with moderate yields.
• 😀 Dollar-cost averaging (investing gradually over six months) can help reduce market timing risks and allow you to take advantage of dips while avoiding the temptation to wait for the perfect opportunity.
• 😀 To diversify your portfolio, consider investing in underrepresented sectors like real estate (XLR) and consumer staples (XLP), which tend to hold up better during market corrections.
• 😀 The 5% rule (or the 4% rule) can guide your retirement savings goal, helping you figure out how much you need to reach your retirement number and alleviate investment stress.

Q & A

Why is the last week of the year important for managing your tax bill?

The last week of the year is crucial because it is the final opportunity to make decisions that can help lower your 2026 tax bill. By reviewing your capital gains and losses, you can offset taxes owed by selling stocks at a loss or using other strategies to reduce your taxable income for the year.

What is the difference between short-term and long-term capital gains?

Short-term capital gains are gains from assets sold within a year, taxed at ordinary income rates, which can go as high as 37%. Long-term capital gains come from assets held for over a year and are taxed at a lower rate, typically 15% or 20%. The key difference is the holding period and the tax rates that apply.

Can short-term and long-term capital gains cancel each other out?

Yes, short-term and long-term capital gains can offset each other. For example, if you have $100,000 in long-term capital gains and $100,000 in short-term losses, those can cancel each other out, potentially reducing your tax liability to zero for the year.

How do taxes work when dealing with options in your portfolio?

For options, the tax treatment depends on whether you're holding the options long-term or short-term. If you buy and sell a call or put option within a year, it will be considered a short-term capital gain or loss. However, if you hold the option for over a year, it may qualify for long-term capital gains tax rates. Additionally, there are no taxes owed until the stock purchased through an option is sold.

What is the recommended amount of cash to hold in a portfolio?

It's generally advised to hold no more than 10% of your portfolio in cash, excluding emergency funds or money you plan to use in the short term (1-2 years). Holding excess cash in your portfolio can limit potential returns, and investing that cash can generate better returns, especially in safe investments like bonds.

What are bond funds and why are they a good place to put cash?

Bond funds, especially ETFs, are a safer investment compared to stocks. They hold a collection of bonds issued by governments or companies. Investing in bond funds can provide steady returns through interest payments (dividends), making them a suitable option for cash that you don't want to leave sitting idle in a savings account.

What is the difference between TLT, BSV, and BND bond ETFs?

TLT is a long-term Treasury Bond ETF with a low risk profile and a 4.3% dividend yield. BSV is a short-term bond ETF focusing on investment-grade companies with a yield of 3.7-3.8%. BND is a total bond market ETF that invests in a wide range of bonds, offering a slightly higher return of around 3.8% with more diversified risk across the bond market.

Why should you avoid holding large amounts of cash waiting for the 'right' time to invest?

Waiting for the 'right' time to invest can be risky because market conditions are often unpredictable. Holding cash with the hope of a market crash or correction can cause you to miss opportunities for growth. Instead, it's better to invest gradually over time, allowing you to take advantage of market fluctuations while avoiding the stress of trying to time the market perfectly.

How can gradually investing cash over time benefit an investor?

Gradually investing cash over time (for example, in six equal chunks) allows you to spread out your risk. This strategy, called dollar-cost averaging, ensures that you invest at different price points, which can help you avoid buying at a market peak. It also gives you some flexibility if the market drops, as you'll still have cash available to invest at lower prices.

How can diversifying your portfolio into different sectors reduce risk?

Diversifying your portfolio by investing in different sectors (such as real estate, consumer staples, or healthcare) can reduce risk, especially during market downturns. For example, real estate and consumer staples tend to perform better during recessions, providing a buffer against losses in more volatile sectors like technology.