12/19/2025
We wanted to share with you a new article from our website recently published by
William Will, CFA, Financial Advisor.
End of Year Ideas for Your Portfolio:
After the past 6 months of gains and new all-time highs in the stock market you may have forgotten about the near-bear market we experienced in April. For those of you who follow the markets closely, you may have noticed the first week of November resulting in significant declines across the major indexes and a negative shift in the narrative from the financial media. Writing this article is not a prediction of more declines to come but we thought it may be a good time for a reminder of the actions you and your advisor can take after periods of above average market performance.
Unfortunately, most investors are subject to a behavioral bias called loss aversion. This means we prefer avoiding losses as opposed to reaching gains. In other words, investment losses hurt more than gains feel good. The feeling of loss aversion may urge you to sell your stocks and have the safety of cash “until things settle down a bit” but we do not recommend that for most investors. If the past 5 years in the stock market has taught us anything, it’s that stocks can be volatile and trying to time the market could lead to big mistakes. In April we experienced a ~4% single day decline in the S&P followed by a ~10% gain just a few days after. In addition to taking a long-term approach to investing these are the actions we not only suggest but implement for our clients on a regular basis:
1. Rebalance:
Trading in your account to bring your portfolio allocation to target. You can only rebalance your portfolio if you have an asset allocation to begin with. Let’s use a simple 60% stock and 40% bond portfolio as an example to illustrate this idea. Let’s say you invested $100,000 on January 1st, 2025, and purchased $60,000 SPY (an index fund tracking the S&P 500 US Stock Market) and $40,000 AGG (an index fund tracking the Bloomberg US Aggregate Bond Index) and did not rebalance throughout the year. This hypothetical portfolio would have gained over 12% (as of November 7th) your allocation would now consist roughly 62% SPY and 38% AGG, because stocks have gained more than bonds this year. Rebalancing would be selling $2,000 SPY and subsequently buying $2,000 AGG to bring the account back to target, 60%/40% and realizing a gain. If the stock market eventually goes down you could execute the opposite trade and sell some of your bonds, assuming they have remained stable, and buy more stocks at a lower price.
2. Diversify:
Continuing our story from the rebalancing example, if the stock portion of your portfolio consisted solely of SPY, or any index fund tracking the S&P 500, you may not be aware of the concentration risk in the market today. Today, the 7 biggest stocks in the S&P 500 account for ~35% of the index, expanding that list to the top 10 companies and the weighting is slightly over 40%. In dollar terms, you can think of this as $24,000 of your $60,000 invested in the S&P 500 are directly reliant on the performance of 10 companies even though the fund tracks 500 large US-based companies. If this has been your investment strategy you’ve been largely right over the last decade plus and the reason for that is the same technology giants that dominated the 2010-2020 internet decade are the companies leading the market on excitement around artificial intelligence. One solution to the concentration issue is to diversify. Take profits from strong performing areas in your portfolio and add to areas that may outperform going forward. The message here is not to sell all your best stocks and S&P 500-related funds but rebalancing and diversifying your portfolio is something you can do to address risks in the market, especially after large gains.
3. Tax Loss Harvest:
This applies to taxable investment accounts where dividends, interest income, capital gains and losses matter to your tax bill. Maybe you have an unmanaged brokerage account that you like to pick stocks in. Evaluate the cost basis and market value of your investments that haven’t worked out this year and see if selling to take a tax loss makes sense. The wash sale rule prevents investors from claiming an immediate tax deduction from a loss if you buy a substantially identical security within 30 days after the sale. Taxable gains can be offset by realized losses and can help when rebalancing taxable portfolios. Taxable losses can also be carried into future years.
4. Identify Opportunities:
This also ties into rebalancing and diversification. When the market declined in 2022 the giant technology companies had some of the largest losses. If you were only invested in stocks, you likely didn’t have many investments that held their value or profited, therefore missing an opportunity to rebalance into great companies at a discount. In hindsight, staying the course worked out just fine but history doesn’t necessarily repeat itself, especially in the stock market. I imagine we’ll see another stock market correction in the future. Historically, these have been the best time to buy. If you’re diversified, regularly rebalancing, taking a long-term perspective you’ll start to view market drawdowns as a time to identify great investment opportunities.
5. Review your financial goals and balance sheet:
For some investors maybe it is time to take some risk off the table. If anything has changed your goals, time horizon, liquidity needs, tax situation or any unique circumstances then contact your advisor and review where the portfolio stands. We can align your investments with your specific needs and it’s usually better to adjust when your portfolio is doing well.
Investor bias often stems from how information is framed. Headlines about tariffs, AI bubbles, or government shutdowns can create undue concern about holding equities. Viewed through a broader lens, the macro environment reflects GDP and earnings growth, interest rate reductions, moderating inflation, and significant technological progress. Looking at the year-end and into 2026, I would expect a continuation of the constant battle between inflation and employment data to drive monetary policy but ultimately result in rates and inflation to trend lower. Looking at the current 5-year breakeven inflation rate of ~2.37% this can be viewed as the market’s expected inflation rate over the next 5 years and it’s not too dissimilar to the long-term average.
We have consistently recommended to clients not to let politics or government policy impact their investment decisions. Tariff announcements in April lead to one of the most volatile periods in recent market history. Shortly after the announcement of tariff delays kicked off one of the strongest 6-month rallies. Timing these sorts of policy shifts is impossible and we believe you are better off taking a long-term perspective. Not all policy changes are near term negatives for the market either. 2025 brought a tax bill that can largely reduce taxes paid by both consumers and businesses for the foreseeable future leaving more cash available for investment or spending. Another potential political tailwind is deregulation. Less government involvement in business activity allows companies to pursue projects that may have been on hold in a more regulated environment.
The last point I’ll address is the fear of an AI bubble. There are a few similarities between 1999 and 2025 but I would put more emphasis on the differences. The 2000 tech bubble was a market in which any stock with ‘.com’ in the name soared higher each day regardless of what was on their income statement or balance sheet. Today, the companies leading the AI theme have consistently expanded their earnings and cash flows for years and funded their AI investments largely from the balance sheet, not debt. The past few weeks we’ve seen some of the more speculative areas of the market get brought back down to earth but there is plenty of evidence to point to the overall market not being in a bubble. Future market performance will be defined by events that haven’t happened yet so rather than speculate we choose to take the actions listed above to make the best decisions for our clients.
Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation.
