There’s a recurring dilemma in investment management: suffer a little pain now or risk a bigger one later. You made money this year—perhaps a lot of money—and those winners have nudged your portfolio away from the Recommended Market Portfolio you agreed with your AFO advisor. Suddenly you’re tech-heavy, concentrated in the Magnificent Seven, or otherwise overweight in one corner of the market. That drift matters because your goals were translated into a holistic, diversified plan meant to carry you into and through retirement—not to let a few big winners dictate your risk.
It’s natural to savor gains. As markets sit near highs, gratitude and optimism feel deserved. No one can predict what happens next. But other sectors and regions often outperform in cycles, and you want capital ready when those opportunities arise. That means taking a breath, trimming winners, and accepting a modest tax bill now so your portfolio can remain aligned with your long-term plan.
Below we explore the psychology that makes selling winners painful, include a practical example from an AFO advisor, and offer clear steps you can take with your advisor so taxes don’t become an excuse for concentration risk.
Why Selling Winners Feels Hard: 4 Behavioral Biases in Investing
High-net-worth investors are not immune to basic human wiring. Behavioral science identifies several predictable habits that make profit-taking emotionally fraught.
- Loss aversion: Taxes register psychologically as a “loss,” and human brains weigh losses more heavily than equivalent gains. The mere act of crystallizing a gain and triggering tax feels like surrendering value.
- Disposition effect: Many investors hold winners too long (to avoid realizing gains) and hang on to losers too long (hoping for a rebound). That dynamic is the enemy of disciplined rebalancing.
- Regret aversion and status quo bias: The fear that you’ll sell and then watch the position climb—or that selling feels “final”—often leads to inaction. It’s easier to do nothing than to choose and risk regret.
- Mental framing: Investors anchor to pre-tax portfolio values and imagine taxes as subtracting from what “should have been,” rather than seeing after-tax allocation that supports objectives.
Taken together, these tendencies create a real inertia against taking profits—often at the expense of risk control and long-term performance. Now let’s zero in on the #1 culprit: regret aversion.
What Is Regret Aversion Bias in Investing?
Regret aversion bias in investing is the tendency to avoid decisions that could later cause regret—even when those decisions are rational or beneficial. For clients, regret aversion bias may lead to weighing the potential emotional pain of experiencing a loss. In fact, regret aversion is closely related to the fear of missing out, or FOMO, where the anxiety of missing out can potentially overpower rational decision making.
As one example of this behavior, according to Schwab, in early 2020 as the COVID-19 pandemic fueled global panic, the S&P 500® Index dropped more than 30% from earlier in the year. At this point, investors affected by the regret aversion bias may have concluded that they’d heavily regret staying invested if stocks continued to fall, leading them to cash out of the market. Unfortunately, these investors may have subsequently stayed overallocated to cash and avoided getting back into stocks even after they had bottomed. This means they would have missed out on at least some of the market’s 18.4% gains for the year.
5 Ways Regret Aversion Impacts Portfolio Decisions
Regret aversion steers many high-net-worth investors away from timely profit-taking. It makes selling winners feel emotionally risky, and that hesitation can skew allocations and weaken long-term results. Here are the five ways regret aversion typically shows up — and what it means for disciplined investing.
- Timing fear — avoiding selling too early or too late
- Investors worry they’ll sell a winner just before it rises further or hold too long and give back gains. Both mistakes cost performance.
- Lesson: use a pre-planned, staged approach to remove emotion from timing decisions.
- Investors worry they’ll sell a winner just before it rises further or hold too long and give back gains. Both mistakes cost performance.
- Decision paralysis
- The prospect of regretting either action can freeze choices. Investors over-analyze, defer sales, and miss windows to rebalance.
- Lesson: set rules and timelines in advance so decisions are mechanical, not purely emotional.
- The prospect of regretting either action can freeze choices. Investors over-analyze, defer sales, and miss windows to rebalance.
- Balancing risk and regret
- To avoid the pain of either extreme outcome, investors often hedge by holding mixed bets — but without intent this can leave portfolios inefficient or overdiversified.
- Lesson: align hedging and diversification with stated objectives, not just emotional comfort.
- To avoid the pain of either extreme outcome, investors often hedge by holding mixed bets — but without intent this can leave portfolios inefficient or overdiversified.
- Holding losers too long
- Selling a loser feels like admitting a mistake, so investors delay realizing losses that could be harvested or redeployed. That behavior increases opportunity cost.
- Lesson: treat loss realization as a strategic tool (tax-loss harvesting, reallocation), not a personal failure.
- Selling a loser feels like admitting a mistake, so investors delay realizing losses that could be harvested or redeployed. That behavior increases opportunity cost.
- Overemphasis on short-term emotions
- Regret bias elevates recent moves and headlines, prompting reactive trades that undermine disciplined, long-horizon plans.
- Lesson: prioritize plan consistency and measure decisions by objectives, not by short-term feelings.
- Regret bias elevates recent moves and headlines, prompting reactive trades that undermine disciplined, long-horizon plans.
In short, regret aversion builds emotional hurdles around selling winners and realizing taxes. The cure is process: pre-agreed trimming plans, tax-aware modeling, staged execution, and an advisor’s impartial discipline to convert anxiety into action.
A Real-World Example of Regret Aversion in Action
Regret aversion pushes investors into unhelpful extremes: holding winners until they are dangerously large relative to the portfolio or selling impulsively out of fear. Both outcomes can damage long-term returns.
Aurelius Family Office’s Mark Witaschek recently put this into plain terms: “I worked with a retired software engineer who’d become heavily concentrated in Silicon Valley stocks. He loved the upside, but the position was eclipsing his risk tolerance. We agreed to a staged trimming plan: we took profits in pieces, modeled the tax impact, and redeployed capital into diversified income and equity allocations. The client retained upside exposure while reducing single-stock risk—and slept better at night. That’s the point of partnering with an advisor: to turn emotional decisions into disciplined action.”
9 Tax-Smart Considerations When Realizing Gains
When rebalancing requires selling winners, capital gains taxes are often unavoidable. Viewed properly, recognizing gains can serve several practical and strategic purposes:
- Restore target allocation — Sell appreciated positions and buy underweighted assets to keep your portfolio aligned with the plan and its risk assumptions.
- Manage concentration risk — Trimming large winners reduces single-stock or sector exposure and protects the portfolio from idiosyncratic shocks.
- Lock in profits for goals — Converting gains to cash funds near-term objectives—college, a home, a new car, or a philanthropic pledge—without upsetting long-term strategy.
- Preserve long-term plan integrity — Regular, tax-aware rebalancing keeps investments working toward stated objectives rather than toward emotional comfort.
- Optimize tax timing — Plan sales in years with lower taxable income when possible and use tax-advantaged accounts to reduce impact.
- Harvest losses before year-end — Offset realized gains by realizing losses elsewhere and reinvesting in tax-smart replacements.
- Employ asset-location discipline — Move tax-inefficient holdings (for example, certain REITs) into tax-deferred accounts over time.
- Build a tax reserve — Set aside cash to pay estimated taxes so you don’t get rushed into poor execution.
- Reassess each holding by objective — Ask: “How does this position get me to my goals?” If it’s no longer a fit, a tax hit now may be preferable to a long-term drag.
How Charitable Giving Can Reduce Regret and Taxes
If you’re charitably inclined, donating appreciated securities can be an elegant alternative to selling. Gift long-held shares to a charity or donor-advised fund and you may avoid capital gains tax while taking a charitable deduction for fair market value (subject to limits). The charity can sell tax-free and use 100% of the proceeds—so your donation often stretches farther than an equivalent cash gift after taxes. After a donation, rebalance to maintain target allocation.
Checklist: How to Overcome Regret Aversion With Your AFO Advisor
- Review current allocation vs. target.
- Identify concentrated winners and set a staged trimming plan.
- Model the tax impact across scenarios and years.
- Consider tax-loss harvesting and asset location adjustments.
- Evaluate charitable donations and donor-advised funds if philanthropy is a goal.
- Keep a tax reserve and plan sales around anticipated income.
- Document the decision as part of your long-term plan to reduce emotional second-guessing.
The Bottom Line: Aligning Your Portfolio With Long-Term Goals
Working with your Aurelius Family Office advisor makes this easier. They’re trained to be an impartial advocate for your family’s financial success—free of the ownership bias that comes with your money being, well, your money. If you’ve been lucky enough to produce outsized returns—maybe a crypto ETF that multiplied tenfold or a concentrated tech holding—now may be the right time to harvest gains and put them to work on tangible goals: your daughter’s wedding, a new home, or a legacy gift.
If you have not recently done so, schedule an Investment Review Meeting with your advisor. Take a clear-eyed look at concentration, taxes, and how realized gains can be redeployed to serve the life you want to lead. Pain now, thoughtfully taken, often buys financial freedom later.
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/.