Why You Should Check Your Portfolio Before the Year Ends

Think of this as a financial oil change. If you skip it, the car still runs, but minor issues build up and turn into expensive problems later.

At a high level, you want to run through five quick items:

• 401(k) / 403(b) / 457(b) checkup
• Taxable account tax bomb
• Single stock surgeon risk
• Expense ratio bleeding
• Portfolio drift and the need to rebalance

You do not have endless time here, especially on anything tied to payroll. If you want to adjust retirement plan contributions, your HR or payroll system might need a pay period or two to catch up. So even if you cannot fully fix 2025, at least set yourself up to hit the ground running in 2026.

Red Flag #1: Skipping Your 401(k) / 403(b) / 457(b) Checkup

Your workplace plan is probably one of the biggest tools you have. It is also one of the easiest to ignore because it runs in the background.

You want to check three basic things:

• Have you maxed it out?
• Did you get the full match?
• Is your allocation still right for your goals?

Have You Maxed It Out?

Log in to your payroll portal or plan website and check how much you actually contributed this year.

If you are under the annual limit and you still have a paycheck or two left, you may be able to give it a final push. Just remember that payroll changes can lag, so do not count on a last‑second miracle.

This applies to:

• 401(k)
• 403(b)
• 457(b) (if you have one)

If you cannot quite max it this year, that is fine. Use what you learned to set a realistic contribution rate for 2026 so you are on track from your first paycheck.

Did You Get the Full Match?

A lot of people think they got the full employer match. Many are wrong, and they do not realize it until years later.

Here is the issue. If you:

• “Frontload” your contributions, so you hit the max early in the year, or
• “Backload” and cram a bunch in at the end

Your employer might only match when you are actively contributing. Some plans do not keep matching once your own contributions stop.

That is where a true‑up match comes in. With a true‑up, the employer looks at the whole year and makes you whole on the match, even if your timing was weird.

Run through this quick checklist for 2025 and for your 2026 plan:

1. Look at your contribution pattern across the year and see if it was even or lumpy.
2. Ask HR or read your plan documents to see if your plan offers a true‑up match.
3. If there is no true‑up, plan to spread contributions out more evenly in 2026 so you do not leave free money on the table.

Is Your Allocation Still Right?

While you are inside the plan, do not skip the investment side.

Ask yourself:

• Are you getting close to retirement and still sitting in a very aggressive mix?
• Are you already retired and still riding a heavy stock position that could crush you if the market drops early in retirement?
• Did the plan default you into cash or a target‑date fund, and you never changed it?

That “sequence of returns” risk in early retirement is real. A big drop in the first few years can hurt your long‑term income even if the market recovers later, so you may want to d‑risk a bit as you get close.

Target‑date funds are the default in many plans now. They are fine as a starting point, but they are often more conservative than what many high earners or long‑horizon investors might want. You do not have to leave if you like the simplicity, but you can:

• Check that the date on the fund lines up with your real retirement plans.
• Decide if you want to switch to a more custom mix over time.

Red Flag #2: A Tax Bomb Hiding in Your Taxable Account

Next stop, your taxable brokerage account. That could be:

• An individual account.
• A joint account with a spouse or partner.

This is where capital gains live, both the exciting kind and the painful kind.

Harvest Losses Smartly

If some of your holdings are down, you might have a chance for tax loss harvesting.

In simple terms, you:

• Sell something at a loss.
• Use that loss to offset gains elsewhere.
• If you have more losses than gains, you can use up to $3,000 per year to offset ordinary income.

If you want to buy something similar after you sell, you have to watch the wash sale rules. If you sell a security at a loss and buy the same or “substantially identical” security within 30 days before or after the sale, the loss is disallowed. So do not sell a fund, then turn around and buy that exact same fund the next day.

Losses you do not use this year can carry forward for future years. Think of it as building a little tax loss bank you can tap later.

Rebalance and Think About Asset Location

While you are in the account, look at your overall mix.

Some questions to ask:

• Do you have positions with large gains that you are comfortable trimming?
• Can you use harvested losses to soften the tax hit of realizing some of those gains?
• Does your combined taxable plus retirement mix still match your plan?

This is also a good moment to think about asset location, not just asset allocation.

For example, if you are a high earner:

• Heavy dividend funds in taxable accounts can lead to big annual tax bills. When you can, you may prefer to keep those in tax‑advantaged accounts such as a 401(k) or Roth IRA.
• In your taxable account, you might prefer funds that are more tax‑efficient.
• If you want bond exposure in taxable, municipal bonds can sometimes be attractive because their interest is exempt from federal income tax, and the tax‑equivalent yield can be strong for higher brackets.

You will not get this perfect, and that is fine. Just try not to park your least tax‑friendly holdings in your most taxable accounts when you have better options.

Red Flag #3: Being a “Single Stock Surgeon”

This one is for you if you have a large chunk of your net worth in a single stock.

Maybe it’s former employer stock. Perhaps it is a meme stock that took off. Maybe it is a giant tech name that went on a wild run, like Nvidia.

It feels great when the line goes straight up. It feels awful when it comes back down, and you realize half your net worth was hitchhiking on that one ticker.

Time To Trim That Exposure

The end of the year is a natural time to think about trimming a concentrated position.

You can:

• Sell part of the position near the end of one year.
• Then sell another chunk early in the following year.

That splits the gains across two tax years, which can help manage how much lands on a single return. If you lined up some tax loss harvesting in your taxable account, those losses can also help offset some of the gains you realize when you trim that big position.

The key idea: you do not have to go from 90 percent in one stock to zero overnight. You can create a plan to step down the risk over time.

Use Charitable Giving To Clean Up Low‑Basis Stock

If you are already charitably inclined, this part can be a major win.

Say you have a stock you bought for $50,000. Now it is worth $100,000. Your cost basis is $50,000; your gain is $50,000.

If you sell it:

• You owe capital gains tax on that $50,000 gain.

If you donate it to a donor‑advised fund (often called a DAF):

• You can get a charitable deduction for the full $100,000 value, subject to AGI limits.
• You avoid paying capital gains tax on that built‑in $50,000 gain.

You only ever put in $50,000 of your own cash, but you get a deduction on $100,000 of value. That is powerful.

A simple way to think about the steps:

1. Confirm that you normally itemize deductions or are close enough that a larger gift could push you over the standard deduction.
2. Identify low‑basis stocks that have done very well and that you are comfortable donating.
3. Gift shares of that low‑basis stock to your DAF instead of writing a check from your bank account.

If you want to keep your investment exposure the same, you can then use cash from your bank account to buy back a similar position in your portfolio. That gives you the same market exposure, but with a higher cost basis and cleaner tax picture.

This is not about turning you into a full‑time philanthropist. It is about using generosity in a smart way if you are already giving.

Red Flag #4: Expense Ratio Bleeding

Fees are not exciting, but they are one of the few things you can control. They also quietly eat away at your returns if you ignore them.

A lot of investors still think their 401(k) or their funds have “no fees.” They definitely do.

You want to look for the expense ratio on each fund, usually listed as something like 0.50 or 0.10.

Here is a quick example on a $1,000,000 portfolio:

Portfolio Size	Expense Ratio	Annual Cost	Difference vs 0.50%
$1,000,000	0.50%	$5,000	baseline
$1,000,000	0.10%	$1,000	saves $4,000
$1,000,000	0.05%	$500	saves $4,500

That $4,000 or $4,500 per year difference is not just one year. It compounds. You save the fee, and you also get growth on the money you did not spend.

Here is what to audit:

• Your 401(k) or 403(b) fund lineup.
• Any backdoor Roth IRA accounts.
• Solo 401(k) accounts.
• HSAs with investments.

Some older or “dated” workplace plans still have average expense ratios around 0.50 percent, and some creep up toward 0.75 or even close to 1.00 percent, even for the cheaper options.

If your plan offers a low‑cost index fund around 0.10 percent or less, that can be a significant upgrade over more expensive active funds. In some modern plans, you can even find core index funds under 0.05 percent.

Every time you swap from a higher expense ratio to a lower one and keep similar exposure, you boost your expected net return without taking more risk. That is hard to beat.

Red Flag #5: Letting Portfolio Drift Run Wild

Portfolio drift occurs when some parts of your portfolio outpace others. Over time, your mix can get pretty far away from what you originally picked.

In one recent period, when this was recorded, rough numbers looked something like this:

• Nasdaq tech is up about 21 percent.
• International stocks are up about 26 percent.
• Emerging markets are up about 30 percent.
• S&P 500 up about 16 percent.

Nobody is mad at those numbers.

But at the same time:

• Mid‑cap stocks were only up around 5 percent.
• Small‑cap stocks were only up around 4 percent.

On the bond side, you had:

• Aggregate bond index is up about 7 percent.
• Municipal bonds are up about 4 percent.
• High‑yield bonds are up around 7 percent.

You do not need to memorize any of that. The point is, different pieces move at different speeds.

How Drift Shows Up In Real Portfolios

Take a simple four‑fund stock portfolio:

• S&P 500
• International large‑cap
• US mid‑cap
• US small‑cap

If the S&P and international funds have a strong year while mid and small caps lag, your portfolio slowly tilts more and more to the winners.

It feels good in the moment because the winners have more money piled in them. The problem shows up in the following year.

If mid and small caps suddenly have a great year and large caps lag, you go into that year with less money in the thing that is now leading. You might also be taking on more risk in whatever sector or region has been hot recently.

The same idea applies to bonds. If long‑term or high‑yield bonds have a stronger run than safer bonds, your fixed income side might quietly get more aggressive than you planned.

Rebalance Once It Gets Too Far Off

Rebalancing is simply nudging your portfolio back toward your original target.

A common rule of thumb:

• If a holding or asset class drifts by more than about 3 to 5 percent from target, it is time to consider rebalancing.

You can:

• Use your 401(k) platform to set up periodic rebalancing if they offer it.
• Put a calendar reminder at year‑end to review all your accounts, including Roth IRAs, HSAs, and solo 401(k)s.

Rebalancing forces you to do what feels uncomfortable:

• Trim what has done really well.
• Add to what has lagged.

That is usually the opposite of what your emotions want you to do, which is exactly why a simple rule really helps.

Make This a Yearly Habit

You do not need to stare at your portfolio every day. You do want to give it a good annual checkup.

You can even treat this as a small checklist for your year‑end review:

•  Review 401(k) / 403(b) / 457(b) contributions, match, and allocation.
•  Scan taxable accounts for tax loss harvesting and tax‑smart asset location.
•  Look for single‑stock positions that are too large and plan to trim or donate them.
•  Audit expense ratios across all accounts and swap to lower‑cost options when possible.
•  Check for portfolio drift and rebalance if you are outside that 3 to 5 percent comfort zone.

None of these steps are flashy. They are the quiet, boring things that keep your financial life clean and your future self happy.

Conclusion

A solid year‑end review is not about guessing the next hot stock. It is about catching a handful of red flags before they turn into real problems.

If you can knock out these five checks each year, you will likely save on fees, cut down on avoidable taxes, and keep your risk level tied to your actual goals, not to whatever part of the market just had a good year.

Treat this like brushing your teeth. It is not thrilling, but it keeps the pain away.