Holiday errands crowd calendars, but one task deserves a prime slot: rebalancing your portfolio. Markets rarely move in lockstep. When winners run and laggards slump, your carefully chosen mix drifts.

A simple year-end reset can realign risk, capture tax benefits, and set a steadier course for next year—without guessing what markets do next.

<h3>Asset Mix</h3>

Rebalancing means restoring your target allocation across stocks, bonds, cash, real estate funds, or other holdings. If stocks fell more than bonds, a 70/30 plan might have slid to 62/38. Left alone, that creeping shift changes your risk level. Rebalancing pushes your portfolio back to the risk you originally planned to take.

<h3>Why Year-End</h3>

Year-end concentrates three advantages. First, markets have delivered a full year of dispersion, so drifts are meaningful. Second, many investors review finances now, creating a natural trigger. Third, rebalancing pairs well with tax-loss harvesting to potentially reduce your upcoming tax bill while tightening risk controls.

<h3>How To Rebalance</h3>

Start with your written targets (for example, 70% stocks, 25% bonds, 5% cash). Compare current weights. Trim what’s above target and add to what’s below. Prioritize tax-advantaged accounts for trades to avoid capital-gains taxes. If using taxable accounts, favor selling positions with losses or long-term gains first.

Always confirm settlement times and any trading fees.

<h3>Smart Thresholds</h3>

Calendar rebalancing works, but thresholds add discipline. A common rule is “5/25”: rebalance when an asset class drifts by 5 percentage points or 25% of its target, whichever is greater. Example: a 20% target for bonds would trigger action if bonds move outside 15%–25%. Thresholds reduce churn and keep decisions consistent.

<h3>Tax-Loss Harvesting</h3>

Rebalancing creates a perfect moment to harvest losses. Realized capital losses can offset realized capital gains. If losses exceed gains, up to $3,000 can offset ordinary income this year; remaining losses carry forward indefinitely. Harvesting turns lemons into future tax lemonade while keeping your allocation on target.

<h3>Avoid Wash Sales</h3>

To keep harvested losses deductible, avoid buying the same or “substantially identical” security within 30 days before or after the sale. Replace with a similar—not identical—holding.

Examples: swap a single-stock position for a diversified sector ETF; exchange one total-market fund for a large-cap blend fund with a different index; or use a temporary tilt and rotate back after 31 days.

<h3>Location Matters</h3>

Place less tax-efficient assets (like taxable bond funds, REITs) inside tax-advantaged accounts when possible. Keep tax-efficient index funds and broad ETFs in taxable accounts. During rebalancing, shift exposure between accounts to improve “asset location” without changing your overall target mix.

<h3>Behavioral Edge</h3>

As Benjamin Graham, the father of value investing, famously said: “Individuals who cannot master their emotions are ill‑suited to profit from the investment process.”

Rebalancing enforces “buy low, sell high” at the portfolio level. Selling a strong performer can feel wrong; adding to a laggard can feel worse. A rules-based process removes emotion, replacing hunches with a checklist. Over time, that discipline is a quiet compounding engine—especially during volatile years.

<h3>How Often</h3>

Pick a cadence you’ll follow. Quarterly or semiannual checks are common; annual is fine if you also use thresholds. Too frequent trading can trigger taxes and friction; too infrequent increases drift. Document your rule and stick to it, adjusting only if your goals, time horizon, or risk tolerance truly change.

<h3>Common Mistakes</h3>

Don’t rebalance blindly across accounts—mind tax lots and holding periods. Don’t chase what just rallied; rebalancing is not momentum trading. Don’t ignore cash flows: directing new contributions to underweight areas can rebalance with fewer taxable sales. And don’t forget that large distributions from funds near year-end can affect your tax picture.

<h3>Extra Opportunities</h3>

Year-end is a natural time to pair rebalancing with other smart moves. Max out workplace plans and IRAs if possible. Consider a charitable gift of appreciated securities instead of cash to avoid capital gains and secure a deduction if eligible. Review emergency funds so you aren’t forced to sell investments at a bad time.

<h3>Simple Checklist</h3>

- Confirm targets.

- Export holdings and weights.

- Identify drifts beyond thresholds.

- Harvest losses where appropriate.

- Select replacement funds to avoid wash sales.

- Trade in tax-advantaged accounts first.

- Redirect new contributions to underweights.

- Document changes and schedule the next review.

<h3>Conclusion</h3>

A year-end rebalance is small effort with outsized impact: tighter risk control, cleaner taxes, and a plan you can actually follow. Ready to run your numbers now—and lock in a calmer, more intentional starting point for the new year?