After another year of broad market gains, rebalancing is less about predicting what comes next—and more about managing risk, taxes, and real-life goals with intention.
The Year After the Rally
After another healthy year of gains across most asset classes, many investors begin the new year asking familiar questions. Will the so-called January Effect—the historical tendency for stocks to rise early in the year—make another appearance? Can the bull market carry forward into 2026?
Layered onto those market questions are real-world uncertainties: geopolitical tensions in Venezuela, fragile ceasefire arrangements in Ukraine and Gaza, and a global backdrop that feels increasingly complex. No one knows precisely what markets will deliver next year.
What is clear is that Aurelius Family Office clients have benefited meaningfully from disciplined global diversification. Portfolio values are higher. Account balances are up. And with success comes a new—and welcome—set of questions:
Should we trim some excess gains?
Is it time to build larger cash reserves?
Should we hold liquidity for rising state taxes, a daughter’s wedding, an educational travel program with Road Scholar, or even a long-planned purchase like a new Lexus?
These conversations naturally raise concerns about capital gains taxes, IRMAA surcharges, and the discomfort many investors feel about realizing gains. But let’s be candid: these are good problems to have. The question isn’t whether taxes exist—they always will. The question is when, how, and for what purpose gains are realized.
That’s where thoughtful, professional rebalancing becomes one of the most valuable disciplines in long-term wealth management.
Why Rebalancing Matters—Especially After Strong Markets
Rebalancing is not about market timing or forecasting short-term returns. It is a risk-management, tax-aware, and goal-driven process that helps keep your portfolio aligned with the life you want your wealth to support.
For our clients—particularly those approaching or living in retirement—it is one of the most important “maintenance” practices in a sound financial plan.
1. Keeping Risk Where You Intended It
Over time, asset classes grow at different rates. Left unattended, portfolios naturally drift away from their original allocation—often becoming more aggressive than intended.
A portfolio designed as a balanced 60/40 allocation, for example, can quietly evolve into a far riskier mix after years of equity outperformance. That increased exposure may feel comfortable during bull markets but can lead to deeper-than-expected drawdowns when volatility returns.
Consider investors with significant exposure to technology-heavy funds such as the Invesco QQQ, which tracks the Nasdaq-100. Strong recent performance—gains exceeded 20% in 2025—can create meaningful concentration risk unless proactively managed.
Rebalancing restores your portfolio’s risk profile to match your original intent, not the market’s momentum.
2. Supporting Long-Term Returns With Discipline
Rebalancing naturally embeds a “sell high, buy low” discipline into portfolio management—without relying on emotion or headlines.
At Aurelius, we view rebalancing as a way to modestly enhance long-term outcomes while smoothing the overall investment experience. While the incremental return benefit may measure in tens of basis points annually, the greater value often lies in risk control and behavioral discipline—especially during volatile periods.
3. Optimizing Taxes and Account Location
Rebalancing is not just about what to sell—it’s about where and how trades are executed.
We coordinate rebalancing decisions across taxable, tax-deferred, and tax-free accounts to help manage capital gains, tax brackets, required minimum distributions (RMDs), and future planning strategies such as Roth conversions or charitable giving.
Annual reviews also create a natural opportunity to pair rebalancing with tax-loss harvesting—perhaps realizing a long-held loss in a biotech stock—while raising cash in a coordinated, tax-aware way.
4. Aligning With Life Changes and Real Goals
Risk tolerance and risk capacity change over time—particularly around retirement, inheritances, business liquidity events, or health considerations.
Rebalancing meetings provide a structured moment to revisit goals and ensure your portfolio reflects not just market conditions, but your evolving priorities. For retirees drawing income, this discipline helps maintain the right balance between growth assets and reserves designed to fund spending needs over a long retirement horizon.
RMDs on the Horizon? Planning Ahead Matters
For investors age 73 and older, Required Minimum Distributions (RMDs) can create significant taxable income. Again—this is a “good problem,” but not one to ignore.
One effective strategy is strategic withdrawal sequencing: withdrawing more than the minimum during lower-income years—often before Social Security or pensions begin—to reduce future account balances and smooth taxable income over time.
This approach can help manage future tax brackets, reduce Medicare premium surcharges, and create greater flexibility later in retirement.
How We Rebalance Portfolios at Aurelius Family Office
At Aurelius, rebalancing is not a single event—it is part of an integrated portfolio management process designed to align investments with planning, tax, and life decisions.
1. Tax Bracket Management
We help clients manage taxable income with the goal of staying just below key thresholds. This may include “filling the bracket”—withdrawing enough from qualified accounts to reach the top of a favorable tax bracket without exceeding it.
Example:
Jan and Bob, a retired couple with $2 million invested, want to keep their modified adjusted gross income below IRMAA thresholds to avoid higher Medicare premiums. By coordinating withdrawals, investment sales, and account sequencing, we help them meet cash-flow needs while managing healthcare costs—often one of the most underestimated expenses in retirement.
Medicare planning is complex and highly individualized. We coordinate with Medicare specialists to ensure decisions are aligned not just for today, but for the coming years—and recognize that spouses may benefit from different coverage strategies.
2. Monitoring and Drift Analysis
We continuously monitor portfolios to identify allocation drift beyond agreed-upon tolerance bands. Clients receive clear reporting showing current versus target allocations, highlighting over- and under-exposures by asset class, sector, and geography.
3. Rules-Based Rebalancing Trades
We implement both calendar-based and threshold-based rebalancing, using a variety of methods: redirecting new contributions, sourcing withdrawals from overweight assets, or executing targeted trades when needed.
4. Tax-Aware Trade Design
We coordinate trades across account types to minimize realized gains and manage tax brackets, incorporating lot selection, tax-loss harvesting, and gain deferral strategies rather than trading mechanically.
5. Strategy, Policy, and Documentation
We design and maintain written investment policies that define target allocations, rebalancing frequency, and risk parameters. We also consider pensions, real estate, and other non-portfolio assets as part of a household-level allocation.
6. Behavioral Coaching and Communication
Left on their own, investors often chase winners, freeze during downturns, or avoid necessary action. A disciplined rebalancing process provides an external voice of reason—helping clients stay aligned with long-term goals rather than short-term emotions.
An Ongoing Exercise in Tax Efficiency: Mutual Funds to ETF Migration
Many long-time investors still hold legacy mutual funds acquired before ETFs became dominant. Over time, converting appropriate holdings to ETFs can improve tax efficiency, reduce costs, and increase flexibility—particularly in taxable accounts.
ETFs generally distribute fewer capital gains, offer lower expense ratios, and provide intraday liquidity. While the underlying investment exposure may remain similar, the structural advantages can compound meaningfully over time.
A Short Checklist to Discuss With Your Aurelius Advisor
- Review current allocation versus target.
- Identify concentrated positions and set a staged trimming plan.
- Model tax impact across multiple years.
- Consider tax-loss harvesting and asset location adjustments.
- Evaluate charitable strategies, including donor-advised funds.
- Plan for tax reserves tied to realized gains.
- Document decisions to reduce emotional second-guessing.
Final Word
Working with your Aurelius Family Office advisor brings clarity and discipline to these decisions. Our role is to act as an impartial advocate for your family’s long-term success—free from the emotional attachment that naturally comes with managing your own wealth.
If you’ve experienced outsized gains—whether from technology stocks, private investments, or thematic exposures—this may be an opportune moment to thoughtfully harvest gains and redirect them toward meaningful goals: a family milestone, a new home, or a legacy gift.
If it’s been a while since your last investment review, we encourage you to schedule a conversation. Clear-eyed planning around risk, taxes, and concentration today often buys greater freedom—and fewer surprises—tomorrow.
Disclosures
Aurelius Family Office, LLC (“AFO”) is an SEC-registered investment adviser. Registration does not imply a certain level of skill or expertise. This communication is for informational purposes only and is not intended to provide specific investment, legal, tax, or other professional advice. Investments involve risk of loss. AFO is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice. For information regarding AFO’s services, fees, conflicts of interest, and related matters, please review our Form ADV at https://adviserinfo.sec.gov/firm/summary/323016. Visit us at https://aurelius.net/.
