Three things traders must know into year-end to maximize their returns for 2020

Key Points
  • Active traders: Be on the lookout for key tax forms in January. You could be on the hook for capital gains taxes next spring.
  • Pay attention to how your trading activity affects the weighting in your portfolio. Make sure you’re not overly concentrated in any one sector.
  • Dumping a few losing positions? Done properly, these sales can help you lower your tax bill.
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The next few days are critical for active traders hoping to wrap up the year on a positive note.

That's because now is the best time to take stock of your tax situation for 2020 and manage portfolio volatility in the new year.

Recent market instability notwithstanding, the S&P 500 is up by about 65% since it bottomed out on March 23 when markets plunged on pandemic fears.

Overall, the news has been good for investors, including trading hobbyists who are just starting out.

"It's always helpful to take a step back and look at your portfolio as a whole, especially since equities have done pretty well for the year," said Amy Arnott, portfolio strategist in the manager research group at Morningstar.

"If you're an active trader, it's easy to get caught up in the day to day activity," she said.

Taking these three steps now might even help you avoid some headaches in 2021.

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