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As we settle into 2026, it is a good time to review your investments and potentially make adjustments based on your results in 2025.
Plus, reviewing your portfolio is something you can do inside and justify putting off shoveling the driveway.
Periodic rebalancing is important to portfolio management because it can help ensure that your asset allocation matches your long-term strategy for reaching your financial goals. Each asset class performs differently throughout the year, and this variance can result in your portfolio not being in tune with your asset allocation plan. Being overweight or underweight in certain asset classes can lead to a portfolio that is more volatile than you intend or one that does not perform as well as it could.
Despite recent market volatility, we believe bonds remain a crucial component of diversified portfolios. Historically, bonds have been less volatile than stocks, and investors may find yields attractive relative to recent history and relative to the valuation of stocks. While bonds may offer stable, less volatile returns, a balanced approach, including an allocation to stocks, may potentially be important for long-term growth.
Yields on cash are more in line with historical averages, offering investors the opportunity to earn on their short-term investments and savings. As inflation has decreased, many cash investments are yielding positive real, or inflation-adjusted returns. Some traditional brick-and-mortar banks have lagged in raising rates on savings accounts, demand deposits, and the like. Money market mutual funds, treasuries, and high-yield savings accounts may prove attractive in an effort to maximize returns on cash.
However, while overweighting cash can be a useful tactic, it may not be a long-term solution. Yields on cash investments can change rapidly, and expectations of lower rates in the near future warrant caution. High inflows in money market funds underscore the need to differentiate between short-term goals and long-term wealth-building strategies.
Although inflation has come down significantly, it is still a factor to be monitored. The Federal Reserve (“Fed”) continues to work towards its goal of getting inflation down to 2% per year. However, even if the Fed is successful in achieving that goal, it is important to note that any inflation erodes purchasing power over time. In addition, market participants have been focused on inflation data for the last few years, which could mean that any unexpected, sustained uptick in inflation could lead to increased volatility for financial markets, including both stocks and bonds.
At times, a narrow group of investments outperforms the overall market, and it can lead to opportunities in other areas. It is important to keep in mind that small-cap stocks can be more volatile than other asset classes. Navigating the intricacies of the investment landscape requires a thoughtful and strategic approach. By incorporating portfolio rebalancing, optimizing bond and cash holdings, and considering the potential of small-cap stocks, investors may be able to position themselves for long-term success while mitigating risks associated with market fluctuations.
Important Disclosure: Mike Bergen is a Partner, Managing Director at Beacon Pointe Advisors, LLC. The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. All performance referenced is historical and is no guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. Asset allocation does not ensure a profit or protect against loss. Consult your financial professional for guidance specific to your circumstances.
