Many investors assume that tax-loss harvesting is only valuable during downturns. But in a year like 2025, where major indices have delivered strong gains, there are still overlooked opportunities to enhance tax efficiency, especially for high-net-worth households.
Here’s the counterintuitive truth: even in an up market, parts of your portfolio will likely be down—and that opens the door for smart, intentional tax planning through Strategic Rebalancing.
The Case for Rebalancing After a Growth Year
When markets rise unevenly, it can skew your asset allocation. For example, if large-cap tech outpaced other sectors in your portfolio, your overall risk exposure may be higher than intended. Rebalancing helps you bring your portfolio back in line by selling portions of appreciated assets and reinvesting in underweighted areas.
From a tax-planning standpoint, rebalancing can help manage capital gains exposure proactively rather than reactively. Strategically selling winners and losers allows you to spread gains across tax years or offset them with harvested losses. It also serves as a psychological reset, encouraging long-term discipline over emotional decision-making.
Where Losses May Still Exist
Even in a strong year, certain holdings, especially in specific sectors or international markets, may have underperformed. Since 1995, the average return of the S&P 500 is +10.5%. During the same time period, on average, 148 of those 500 companies ended down by 5% or more each year.
By harvesting these targeted losses, you can offset gains elsewhere and potentially reduce your overall tax liability. Just be mindful of the IRS “wash-sale” rule: if you buy back a substantially identical investment within 30 days, the loss gets disallowed. Even if you’re not currently holding positions with losses, it’s worth setting up a system, or hiring a professional, to monitor unrealized gains and losses throughout the year. The earlier you identify potential loss-harvesting opportunities, the more strategic your overall tax planning can become.
A January Advantage
Many investors wait until year-end to think about tax moves. But January offers a powerful window for the tax-savvy investor:
- Losses realized early can offset gains realized later in the year
- Strategic rebalancing sets a disciplined tone for the rest of the year
- You can assess contribution limits and plan for additional tax-deferred investing (like topping off IRAs or HSAs)
Planning early also allows you to coordinate across accounts, taxable, tax-deferred, and tax-free, to manage income recognition more precisely. For example, by identifying potential Roth conversion windows now, you can use volatility throughout the year to your advantage. Pro Tip: The best time to convert IRA money is during an intra-year decline!
Smart Tax Planning Isn’t Just for Downturns
The biggest misconception? Those tax-saving moves only apply when markets fall. In reality, strong markets create a different kind of opportunity: to lock in gains intentionally, trim overperformers, and reallocate to areas with stronger forward potential, all while managing taxes proactively.
Tax planning isn’t a reactive process; it’s a forward-looking strategy. The best investors use every market environment to sharpen their approach, reduce inefficiencies, and align their portfolios with long-term goals.
If you’re unsure what your unrealized gains and losses look like, or whether your portfolio needs a reset, this is the moment to find out. A comprehensive portfolio review now can prevent last-minute decisions later. Ask yourself, do you want to be a good investor or a great investor?
Strategic tax planning is about discipline, not timing. And January is one of the best months to take action while the rest of the year lies ahead.