Spring Cleaning Your Portfolio: Resetting Risk for the Year Ahead

By Matthew Morzy, MBA, CFP®, Portfolio Strategist, Merit Financial Advisors

Spring tends to be when people finally slow down long enough to take stock. Closets get cleaned out, paperwork gets sorted, and projects postponed during the winter move back to the top of the list. With tax season prompting a closer look at last year’s financial activity, it’s a natural moment to revisit your investment portfolio. Rebalancing isn’t about trying to guess what markets will do next; it’s about checking whether your current allocation still matches your goals and your comfort with risk.

Why Spring Is a Smart Time to Review Your Portfolio

As tax documents arrive and last year’s activity comes into focus, most of us are already in review mode. As a result, Spring is an ideal time to review realized gains and losses, assess how investments performed, and reconsider trades made late in the year for tax purposes.

For example, some clients sell positions in December to harvest losses and offset capital gains. After the IRS wash sale window has passed (generally 30 days on either side of the trade), it may make sense to revisit those positions and determine whether they still belong in the portfolio.

Spring also sits at a useful point in the calendar. The year is still young, but enough has happened to see how your portfolio is behaving. It’s early enough to make adjustments without feeling rushed, yet far enough from year-end decisions to evaluate them clearly, making it a practical moment to reassess.

More broadly, Spring invites a forward-looking question: Is my portfolio positioned appropriately for what I’m trying to accomplish? Even if your goals haven’t changed, your portfolio itself may have, which leaves many investors surprised.

Allocation Drift: A Risk That Sneaks Up on You

One of the most common issues I see in portfolios is allocation drift.

Consider a traditional 60/40 portfolio: 60% stocks and 40% fixed income. After a strong year for equities, that allocation can easily shift to 65/35 or even 70/30 without the investor having to make any changes. While the portfolio growth feels positive, the risk profile has quietly increased.

That shift matters.

If markets decline, a 70/30 portfolio will experience larger swings than the 60/40 allocation the investor originally selected. The investor did not consciously choose to take on more risk, but market performance made that decision for them.

 Volatility is a normal part of investing. Markets move in cycles, and pullbacks occur even during strong long-term trends. Maintaining an allocation that reflects your comfort level and financial objectives helps ensure those inevitable fluctuations do not derail your broader financial plan.

Rebalancing during periods of strength, when markets are up, allows you to deliberately reset risk rather than being forced to respond after losses.

Concentration Risk: When Success Can Create Vulnerability

Another common issue is concentration risk, which often develops gradually.

It starts with an employee receiving company stock as part of compensation or holding a long-term winner that has appreciated significantly. Over time, that single position can represent a substantial portion of total net worth.

While that growth is encouraging, it can also introduce significant risks. History provides many reminders that even well-known companies can face unexpected challenges. When too much of a portfolio is tied to a single stock or sector, a company-specific event can have an outsized impact on overall wealth.

Diversification is not about eliminating opportunities; it is about ensuring that one investment does not dictate the outcome of an entire financial plan.

Rebalancing, Not Reacting

There is an important distinction between rebalancing and reacting to market performance. Rebalancing follows a structured plan. Reacting is driven by emotion.

Markets fluctuate regularly. A 5% pullback may feel significant in the moment, but it is not unusual. The larger challenge arises when investors let short-term fear override long-term strategy.

During the 2008–2009 financial crisis, many investors exited equity markets out of concern that losses would continue. When markets rebounded, gaining more than 60% from the March 2009 low within a year, those who had sold faced the difficult decision of whether and when to reenter. Research has shown that missing just the 10 best market days over a 20-year period can dramatically reduce overall returns.

Rebalancing often requires doing what feels counterintuitive. When equities have risen, and your allocation exceeds its target, trimming exposure can feel uncomfortable. When markets decline and stocks fall below their intended weight, adding exposure can feel even more difficult. Yet those disciplined decisions are what keeps a portfolio aligned with its long-term objectives.

Taxes and Rebalancing Decisions

Taxes are an important consideration in any portfolio adjustment.

Many investors hesitate to trim appreciated positions because doing so may generate capital gains. In some cases, paying taxes may be necessary to reduce concentration risk or realign the portfolio with its intended allocation.

At the same time, strategies such as tax-loss harvesting can improve overall efficiency. Harvesting losses in taxable accounts may help offset realized gains and reduce current tax liability. Direct indexing is another approach used in certain taxable portfolios to enhance tax management, though it requires careful implementation.

Tax planning and investment management should work in coordination, not in isolation.

Accumulation Versus Distribution

Rebalancing also differs depending on whether an investor is accumulating assets or drawing income.

For those still contributing to their portfolios, new investments can be directed toward underweighted asset classes. If equities have underperformed, contributions can be allocated there to restore balance. If fixed income is below target, additions can be made accordingly. This approach allows rebalancing to occur without selling existing holdings.

For investors in retirement who are withdrawing funds, the process works in reverse. When equities have performed well and account for a larger share of the portfolio, trimming them to generate income can naturally realign allocations. During market downturns, fixed-income holdings may provide a source of cash, helping avoid selling equities at depressed prices.

In both cases, the objective remains the same: maintain alignment with the long-term strategy.

Spring Into Action

If there is one habit that consistently benefits investors, it is maintaining a long-term perspective. Daily market movements can feel significant, but over extended periods, they become less consequential. Looking at performance quarterly rather than daily often provides better context and reduces the impulse to react to short-term noise. While market volatility is inevitable, a disciplined approach to rebalancing ensures that volatility does not dictate your financial decisions.

If your portfolio has not been reviewed recently, or if recent market movements have altered your allocation more than you realized, it may be time to reassess. At Merit Financial Advisors, we believe the strongest financial plans are built collaboratively and refined over time. A conversation this Spring can help prevent costly surprises tomorrow and keep your portfolio aligned with your long-term goals.