2025 has been another strong year for equity markets overall, but much of that strength has come from a very narrow group of large-cap technology and AI-related names. The S&P 500’s gains have been heavily concentrated, leaving many portfolios more dependent on a small set of companies and sectors than intended.
While this concentration has rewarded investors in the short term, it also raises long-term risk. History shows that market leadership rarely stays this narrow for long. As the economy normalizes and interest rates stabilize, other areas such as small- and mid-cap equities, international markets, and fixed income offer opportunities for diversification and potentially more balanced risk-adjusted returns.
Rebalancing after a strong, uneven year can help reduce exposure to overextended areas, capture gains, and reallocate toward undervalued or income-generating assets. With bond yields still at attractive levels and inflation trending lower, fixed income once again plays a meaningful role in portfolio construction, providing both ballast and return potential. Even in strong markets, trimming winners and adding to laggards is part of disciplined investing. It helps lock in gains, maintain diversification, and position portfolios for the next stage of the market cycle.
As we approach year-end, it’s a good time to review portfolios through a tax-efficient lens. Markets have created both losses to harvest and gains worth realizing, offering opportunities to optimize after-tax returns if managed intentionally.
Tax-loss harvesting:
Realizing losses on underperforming positions can offset gains elsewhere and can help reduce up to $3,000 of ordinary income if you’re married filing jointly ($1,500 if you are a single filer). You can also maintain your target exposure by reinvesting proceeds into a similar but not “substantially identical” security to avoid triggering the IRS wash-sale rule, which disallows the immediate loss deduction if you repurchase the same or substantially identical investment within 30 days.
Taking gains can be smart, too:
It’s natural to want to defer taxes, but you can’t avoid them forever. At some point, you’ll need or want to recognize those gains — whether for spending, reinvestment, donating appreciated securities to charity or estate planning. Realizing gains strategically this year with the current market conditions can be better than waiting and facing capital gains tax later.
The capital gains rate is currently the lowest tax rate:
Long-term capital gains are currently taxed at preferential rates of 0%, 15% or 20% (plus a potential 3.8% net investment income tax for higher earners), far below ordinary income rates. In other words, you are locking in years of appreciation and compounding while paying a lower rate. It’s one of the few times where paying tax sooner can be a smart financial move.
Bottom line:
Effective year-end tax planning isn’t about deferring taxes altogether; it’s about managing when and how you pay them. Our Westwood advisors are here to help guide you through your individual situation to ensure we are utilizing the most efficient year-end planning.