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Why it might be time to say goodbye to some Big Tech winners in 2024

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As we move into the middle of 2024, it may be time to consider pruning some of the biggest winners in your investment portfolio. The S&P 500 has seen a strong year so far, with a nearly 12% gain. Technology and communication services have been leading the charge, with both sectors up over 20%. Nvidia, in particular, has had an impressive year, boasting a 145% gain. However, it is important to not let these gains skew your portfolio too heavily towards these sectors.

Certified financial planner Blair duQuesnay suggests that rebalancing your portfolio is a prudent move at this point. Rebalancing involves adjusting your asset allocation to ensure it aligns with your long-term goals and risk tolerance. A portfolio that hasn’t been rebalanced in a while can become lopsided, leading to an increased risk profile. Morningstar portfolio strategist Amy Arnott’s analysis showed that a balanced portfolio can become heavily skewed towards certain asset classes if left unchecked for an extended period of time.

Roger Aliaga-Diaz, global head of portfolio construction at Vanguard, emphasizes the importance of rebalancing to maintain a diversified portfolio. As equity markets have outperformed fixed income, he suggests reallocating profits from high-growth stocks to fixed income investments. This can help offset risks associated with market fluctuations and provide stability to your portfolio. Investing in bonds with greater duration can offer price sensitivity to changes in interest rates and potentially boost portfolio values.

In addition to adjusting your fixed income allocation, Aliaga-Diaz recommends rebalancing from growth to value stocks and from large-cap to small-cap equities. Small-cap stocks, in particular, have underperformed the wider market, but could see a boost once interest rates decline. Consider investing in ETFs such as the Dimensional U.S. Small Cap ETF or Vanguard’s Small-Cap ETF to tap into this segment of the market. Diversifying across different asset classes and market segments can help mitigate risks and maximize returns in your investment portfolio.

Managing the tax implications of rebalancing is also crucial, especially in taxable accounts. Selling highly appreciated positions can result in capital gains taxes, but there are strategies to minimize this impact. Tax loss harvesting involves selling losing positions to offset capital gains, while donating low-basis, highly appreciated stock to charity can provide tax benefits. Working with a financial advisor and accountant can help you navigate the tax implications of portfolio rebalancing and optimize your investment strategy for long-term financial success.

In conclusion, the mid-year is a good time to review your investment portfolio and consider rebalancing to ensure it remains aligned with your financial goals and risk tolerance. By trimming highly appreciated positions, reallocating profits to fixed income, and diversifying across different asset classes, you can mitigate risks and maximize returns in your portfolio. Managing the tax implications of rebalancing is also important, and utilizing strategies such as tax loss harvesting and charitable giving can help minimize the impact of capital gains taxes. By staying proactive and strategic in managing your investments, you can position yourself for long-term financial success.

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