By Taylor Winn, Founder & President, Buckhead Wealth Management
At Buckhead Wealth, we sometimes do something that surprises clients: we sell investments that have performed very well. Not because something is wrong with the position, but because the position may have become too large relative to the overall portfolio.
When Good News Creates New Risk
Strong market performance can quietly change the risk profile of a portfolio. If stocks appreciate faster than bonds or cash, a portfolio that was originally designed to be balanced can become more equity-heavy than intended.
For example, a portfolio designed to be 60% stocks and 40% bonds may drift to 70% stocks and 30% bonds after a strong market run. Nothing about the original plan changed, but the portfolio’s exposure to market volatility increased.
That matters because risk is not just about what you own. It is also about how much of the portfolio is concentrated in any one asset class, sector, or position.
Why Rebalancing Matters
Markets move in cycles, and periods of strong gains are often followed by periods of more muted returns or higher volatility. That does not mean markets must fall, or that recent winners cannot continue to perform. It simply means a portfolio that has drifted too far from its target allocation may carry more risk than the investor intended.
Rebalancing is the process of trimming positions that have grown disproportionately and reallocating proceeds to underweight areas of the portfolio. In practice, that can mean selling a portion of appreciated holdings and moving those assets into bonds, cash, or other allocations that better match the client’s risk target and time horizon.
This is not a prediction about near-term market direction. It is a discipline designed to keep risk aligned with the plan.
A Real Planning Example
For some clients, especially retirees, a strong market year can create an opportunity to reduce equity exposure and strengthen the portfolio’s defensive side. In those cases, we may use a portion of appreciated assets to rebalance into bonds, CDs, or other lower-volatility allocations.
The purpose is not to “call the top.” The purpose is to preserve the progress already made and keep the portfolio consistent with the client’s spending needs, risk tolerance, and long-term objectives.
That is one of the core benefits of disciplined financial planning: it helps clients make decisions based on a process rather than emotion.
Disclosure
Taylor Winn is Founder & President of Buckhead Wealth Management in Atlanta, GA. This material is provided for informational purposes only and is not intended as investment, tax, legal, or accounting advice. The views expressed are those of the author and do not necessarily reflect those of LPL Financial.
Investing involves risk, including possible loss of principal. Asset allocation, diversification, and rebalancing do not guarantee a profit or protect against loss. Market performance may vary, and past performance is not indicative of future results. Any examples are for illustrative purposes only and should not be interpreted as a prediction or a recommendation to buy, sell, or hold any security or asset class.