The third quarter closed yesterday. For most households that is a non event, which is exactly the problem. A portfolio that has not been rebalanced in a few years is no longer the portfolio anybody chose. It is whatever the best performing thing in it has grown into, and it carries more risk than the person holding it believes.
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Drift Is Automatic. Correction Is Not.
Set a portfolio at seventy percent stocks and thirty percent bonds, then leave it through a strong stretch for equities, and it does not stay there. The winners grow into a larger share every quarter. Nobody decides this. It simply happens.
The result is a portfolio that becomes most aggressive exactly when valuations are highest and least aggressive after a decline, which is the reverse of what anyone would choose deliberately.
Rebalancing is the mechanical fix. Sell a slice of what grew, buy what lagged, return to the target. It feels wrong every single time, which is why so few people do it.
The Fourth Quarter Has Deadlines The Others Do Not
Three of them close on December 31 and cannot be done late.
Required minimum distributions from traditional retirement accounts. Miss one and the penalty is real money.
Tax loss harvesting. Selling a losing position to offset gains only counts if the sale settles inside the calendar year, and the wash sale rule blocks the deduction if you buy the same security back within thirty days on either side.
Charitable giving, including donating appreciated shares directly rather than selling them first, which avoids the capital gain entirely.
The Rate Backdrop Changed Too
With the Fed raising rather than cutting, the safe end of a portfolio is paying more than it has in a while. That is worth noticing if the bond and cash portion of your allocation has been sitting in whatever the brokerage sweeps into by default, which is usually among the lowest yielding options available.
Final Take
Give this an hour, not a weekend.
Open the account and find the current allocation, which almost every brokerage displays as a pie chart. Compare it to what you intended. If any piece has drifted more than about five points from its target, correct that piece. Do it inside tax advantaged accounts first, where selling triggers nothing.
Then check what your uninvested cash is earning. Brokerage sweep accounts often pay a fraction of what the same firm's money market fund pays on identical cash, and moving it is a two minute transaction.
If you are over the age for required distributions, confirm this year's is done. Custodians get busy in late December and a request submitted on the thirtieth does not always settle on the thirty first.
Markets you cannot control. Allocation, fees, cash yield and deadlines you can, and all four are decided in the next ninety days.
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Disclaimer
The content in this email does not constitute an offer or solicitation to buy or sell any financial instrument. All commentary is general in nature and is not directed at any individual investor.
Written by Deniss Slinkins
Millionaire Core
