📊 Your Year End Portfolio Reset

☕ Good morning SenseMakers!

If your portfolio is not mapped to your next 1, 5, and 10 years, it is not a plan. It is a hope.

Most year end portfolio reviews ask one question: "Am I still 70/30?" But that is the wrong question. The right question is: "Will my money show up on time for my life, and is it sitting in the right accounts for taxes?"

Benchmarks do not pay for college. They do not fund a career downshift or a second home purchase. Cash flow does. And cash flow requires a portfolio with a job description for every dollar: date, purpose, and account placement.

Year end is the perfect moment to stop managing a portfolio in a vacuum and instead realign every dollar to when you will actually need it, then use asset location and smart gain and loss cleanup to reduce taxes and keep your long term compounding intact.

Today, we are walking through a three part year end reset that moves you from benchmark chasing to life alignment.

⚠️ Why Generic Rebalancing Misses the Real Risk

Here is what most people get wrong about risk: they think volatility is the enemy. It is not.

The real risk is being forced to sell long term investments in a downturn because near term needs were not funded. The real risk is needing cash when the market is down 20% and having no choice but to lock in losses to cover a goal that should have been protected months or years ago.

This is called sequence of returns risk, and it is the silent killer of otherwise solid financial plans. The order in which returns happen matters enormously when you are withdrawing money or funding life goals. 

A portfolio that drops 30% in year one and recovers in year three looks fine on a 10 year chart. But if you had to sell during that drop to fund a down payment or cover expenses, the recovery never happened for you.

Take Rebecca, a VP of Marketing with a strong portfolio and two big goals on the horizon: a $150,000 down payment on a vacation home in 18 months and her daughter's $80,000 college tuition starting in three years. 

Both goals were sitting in a balanced fund that had dropped 18% during the last correction. 

When we met, she was confused. She knew she could not afford to sell at a loss, but she also could not afford to wait and hope the market recovered in time.

The problem was not the market. The problem was that near term goals were funded with long term assets.

You do not need more market commentary. You need a framework that helps you decide what to do next, and that framework starts with time.

🗓️ The Year End Timeline Reset: A 15 Minute Exercise

Here is the exercise that changes everything. Grab a notebook or open a notes app and spend 15 minutes mapping your next 1, 5, and 10 years.

Next 12 months: List known cash needs (property taxes, insurance premiums, planned expenses) and your minimum emergency fund target (typically 3 to 6 months of fixed expenses).

Next 5 years: List big goals with dates and rough dollar amounts. Examples: down payment on a home, wedding costs, major renovation, college tuition, business investment, career sabbatical.

Next 10 years: List the big commitments and optionality goals. Examples: full college funding, phased retirement, second home purchase, leaving corporate work for consulting.

Now, next to each item, answer two questions:

1. Which account will fund this goal? (Taxable brokerage, 401(k), Roth IRA, HSA, cash savings)

2. What does it cost to access that money? (Tax treatment, early withdrawal penalties, opportunity cost)

This is how we start every wealth planning engagement at Tailored Wealth. We build the portfolio backward from the next 1, 5, and 10 plus years of cash needs. Not from a benchmark. Not from a generic risk tolerance quiz. From life.

Once you have this map, you can make intelligent decisions about what needs to move and what can stay put.

💰 Core Move 1: Match Near Term Goals to Safer Capital

Money needed soon should not depend on a strong market quarter.

Here is the decision framework:

If you need the money in the next 12 months, prioritize stability and liquidity. This is not the place for aggressive growth. High yield savings, money market funds, short term Treasuries, or conservative bond funds make sense here. The goal is to know the money will be there when you need it, regardless of what the S&P 500 does.

If you need the money in 3 to 5 years, reduce the chance of a forced sale at a bad time. You can take some growth exposure, but you need to protect against the scenario where the market drops right before you need to withdraw. A diversified mix with a significant allocation to bonds and stable assets often makes sense.

If the goal is 10 plus years away, short term volatility is the toll you pay for long term compounding. This is where equity heavy allocations make sense, and where you can afford to ignore the noise of quarterly corrections.

The mistake most people make is treating all their money the same. They either over protect long term money (leaving growth on the table) or under protect near term money (creating forced selling risk).

Rebecca's fix was simple. We moved her 18 month down payment goal into a high yield savings account and a short term bond ladder. Her 3 year college fund went into a more conservative allocation with a bond tilt. Her 10 plus year retirement money stayed fully invested in growth assets. Same total portfolio value, dramatically different risk profile for her actual life.

🏦 Core Move 2: Review Asset Location for Tax Efficiency

Asset location is one of the most powerful levers for high earners, and it is almost always ignored.

Asset location is not the same as asset allocation. Allocation is what you own (stocks, bonds, alternatives). Location is where you own it (taxable accounts, pre tax retirement accounts, Roth accounts). Getting location right can save tens of thousands of dollars in taxes over a lifetime.

Here is a general framework:

Taxable accounts: Hold tax efficient stock funds (index funds and ETFs with low turnover), municipal bonds if you are in a high tax bracket, and positions where tax loss harvesting creates value. Avoid assets that generate a lot of taxable income every year, like REITs or high turnover actively managed funds.

Pre tax accounts (traditional 401(k), traditional IRA): Hold more tax inefficient income producing assets that would be painful in taxable accounts. This includes taxable bonds, REITs, and high dividend stocks. You are deferring the tax hit until withdrawal, which is the point.

Roth accounts (Roth 401(k), Roth IRA): Hold your highest growth, longest horizon assets. Since growth in Roth accounts is tax free and withdrawals in retirement are tax free, you want the assets with the most upside potential here. 

Think aggressive growth stocks, emerging markets, small cap value, anything where you expect significant appreciation over decades. Learn more about Roth strategies here.

The caveat: this depends on your bracket, your state tax situation, and your specific goals. Work with your advisor and CPA to get it right for your situation. But the principle is simple: match the tax treatment of the account with the tax characteristics of the asset. For more on this, read our guide on retirement planning and tax diversification.

Vanguard and Fidelity both publish detailed guides on asset location and tax efficiency if you want to dive deeper.

🧹 Core Move 3: Use Gains and Losses to Tidy Legacy Holdings

Year end is the perfect time to clean up your portfolio and reduce future tax drag.

Here is where tax loss harvesting becomes valuable. If you have positions sitting at a loss, you can sell them, realize the loss to offset gains elsewhere or carry forward to future years, and immediately reinvest in a similar (but not identical) asset to maintain your market exposure.

The key is to avoid the wash sale rule, which disallows the loss if you buy a substantially identical security within 30 days before or after the sale. Keep it simple: sell a large cap growth fund, wait 31 days or buy a different large cap growth fund, and you are in the clear.

Three common scenarios where this matters:

You inherited a high fee fund and never touched it. Sell it, harvest any loss, and reinvest in a lower cost option that actually matches your timeline and goals.

You have three similar US equity funds across accounts and none match a clear purpose. Consolidate into one or two holdings that align with your Life Driven framework and simplify your life.

You want to reduce a concentrated equity position, but taxes keep stopping you. Use losses elsewhere in the portfolio to offset gains from the concentrated position. This is how you methodically diversify company stock without taking a massive tax hit all at once.

Year end is also a good time to review old positions that no longer serve the plan. That single stock you bought 10 years ago and forgot about. The bond fund your uncle recommended that charges 1.2% annually. The alternative investment that sounded exciting but has underperformed for five years straight.

If it does not have a clear job in your 1, 5, or 10 year plan, and if selling it creates a tax advantage or simplifies your life, consider moving on.

🚀 The Teaser: Life Driven Investing Is the 2026 Upgrade

What we have walked through today is step zero: realigning your portfolio to your life timeline before the calendar flips.

In the new year, we are rolling out the full Life Driven Investing framework. This is the methodology we use with every client at Tailored Wealth, and it is built on one core principle: the portfolio is there to serve the plan, and the plan is there to serve the life.

Life Driven Investing aligns your money with the next 1, 5, and 10 plus years of life. It includes four liquidity bands, a systematic refill and rebalancing process, and a tax aware lens that ensures every dollar is working as hard as possible in the right account.

We will break down the full model in January, including how to refill bands as you spend, how to rebalance across time horizons instead of asset classes, and how to integrate equity compensation and business income into the framework.

For now, the key reframe is this: risk is not volatility. Risk is not having money when you need it.

If you build your portfolio around that principle, you stop worrying about daily market moves and start building a financial life that actually works.

🧠 Making Sense of Your Year End Portfolio Reset

Most portfolio reviews are backward looking. They ask: "How did we do this year?" or "Are we still on target relative to the benchmark?"

This reset is forward looking. It asks: "Will this portfolio fund my next 1, 5, and 10 years?" and "Am I paying more in taxes than I need to because assets are in the wrong accounts?"

The three moves we have covered today are not complex, but they are high leverage:

1. Match near term goals to safer capital so you are never forced to sell at a bad time.

2. Review asset location to make sure tax inefficient assets are not bleeding value in taxable accounts.

3. Use gains and losses intentionally to simplify holdings and reduce lifetime tax drag.

If you want to see where your current portfolio stands relative to your real timeline, take the Financial Stress Test. It is a quick way to identify gaps between what you have and what your life actually requires.

The portfolio is not the plan. The portfolio serves the plan. And the plan serves the life you are actually building.

As always, I hope this helps you to Prioritize Your Version of a Rich Life.

Until next week!

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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