Ignore the Year-End “It’s time to rebalance!” Advice

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Just as leaves fall in autumn, you can count on the financial press1 to litter websites and other media with year-end “take losses and re-balance your portfolio” stories.

There is nothing wrong with taking losses and adjusting allocations as the year end nears. However, much of this activity, prompted by the press or lazy advisors who haven’t been paying attention during the year, amounts to little more than a squirrel’s frantic seasonal hunt for acorns.

His survival depends on his gathering as many nuts as possible – thus his frenzy. Fortunately, investors’ financial health is not dependent on the specific time of year or on how much activity can be accomplished before the snows come.

Yes, tax losses are tied to a specific year. Investors and their advisors do need to pay attention to the calendar.

However, it is far better to make changes to portfolios throughout the year as the opportunities and conditions present themselves. Pay attention to the fundamentals of the stock, fund, or ETF or allocation considerations as they change and not to what month it is.

From here until the turn of the calendar, assets will fall prey to year-end dumping, as investors are pressured to rebalance before December 31. Mutual funds and institutional investors will tweak their holdings as they window dress portfolios for year end, further distorting asset prices.

Last year, was a perfect example of why you need to pay attention and take advantage of losses when they occur, not just wait until the “harvest” season. Starting in February 2020, the S&P 500 fell 34% in roughly a month as the full impact of COVID hit investors.

Change in price of S&P 500 index for time period shown during 2020.