From 60-40 To Smart Risk: How To Reset Your Portfolio For The New Year

Are There Any Changes In The New Year To Consider For The Average Portfolio?

Markets rallied for three straight years, and that quiet tailwind may have nudged a lot of “balanced” portfolios into riskier territory than intended. We unpack how allocation drift happens, why it matters more than most headlines, and the simple, rule-based rebalancing steps that protect your long-term goals without trying to time the market. Along the way, we pull back the curtain on how we evaluate underperforming funds, decide when to replace them, and keep overall risk steady while upgrading the lineup.

We also talk through the human side of money. Letting winners run feels great until volatility spikes; buying what just fell feels wrong even when it’s right. We share a practical playbook: set a target mix, define a tolerance band, automate contributions toward underweight assets, and commit to acting when bands are breached. That structure helps override fear and greed, two powerful forces we’ve seen derail plans over decades. You’ll hear how a 60-40 can quietly become 70-30, what that means for drawdowns, and how a quick rebalance restores alignment with your true risk tolerance.

To round things out, we hit key tax and savings angles. We outline current IRA contribution limits—$7,500 per person under 50 and $8,500 with catch-up at 50-plus—and why Roth versus Traditional is a tax-bracket decision, not a trend. We touch on 401(k) considerations and how new contributions can serve as a tax-smart rebalancing tool. The theme running through it all is simple: balance and discipline. Build a portfolio that matches your life, then keep it that way with clear rules and calm execution.

If you found this helpful, follow the show, share it with a friend who’s overdue for a rebalance, and leave a quick review to help others discover us. Ready for a second opinion on your allocation? Schedule your free 20-minute consultation online or call 423-247-1152.

To learn more about B&H Wealth Strategies visit:
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423-247-1152 

Securities and advisory services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak and B&H Wealth Strategies are not affiliated. http://www.finra.org/ http://www.sipc.org/

Transcript

SPEAKER_00 0:03

Welcome to the Four Seasons Podcast, brought to you by BH Wealth Strategies, serving Northeast Tennessee and Southwest Virginia since 1966. Here, we guide you through the ever-changing seasons of your financial journey, offering insights to help you grow, protect, and enjoy your wealth. Ready to turn your financial dreams into reality? Dare to dream. And now, here's your host, President of BH Wealth Strategies, Jeff Bingham.

SPEAKER_01 0:43

A new year brings new opportunities and sometimes new financial rules that can reshape your investment strategy. Welcome back, everybody. Skip Moni, co-host slash producer, back in the studio with the star of the Four Seasons podcast, president of BNH Well Strategies, Jeff Bingham. Jeff, how you been this week? I've been good. How about yourself, Skip? Doing just fine. Glad it's uh warmed up a little bit. I had all the snow I can handle, I think. All the storm.

SPEAKER_02 1:12

Admit the truth. Yeah. Winter uh winter certainly has has been around the Tri-Cities area this particular year, most definitely. So yeah, the warm weather gives at least us a glimpse of uh spring and new growth is just around the corner.

SPEAKER_01 1:29

Amen, brother. Amen. I'm excited. I'm a spring kind of guy. Yes, indeed. So uh so, Jeff, to get us started today, why don't you walk us through this question? Are there any changes in the new year to consider for the average portfolio?

When To Change A Portfolio

Rebalancing After Big Market Gains

Risk Creep In 60-40 Portfolios

How To Execute A Rebalance

Upgrading Underperforming Funds

Rebalancing In Down Markets

SPEAKER_02 1:44

Uh, that's a that's an ageless and timeless question right there that that we get often. And I think um, you know, I I think you always kind of gotta evaluate. I think the first year is always a good time to evaluate portfolios and positions and those types of things. So let's kind of kind of lay that out there. That doesn't necessarily mean that just because we're moving into a new year that you necessarily need to to do anything, as we try to, you know, let's say try to forecast, you know, what the what 2026 is going to bring with the various you know tax implications and benefits of the of the big beautiful bill, the you know, the that environment that that kind of creates. I think that certainly plays a role in all of these things and people want to get, you know, kind of very granular, you know, kind of down into that. But I think if you really back it up, what you look at more than anything else when you think about portfolio changes and adjustments, and I think they are warranted, and I'll go through that. But I think, again, you go back to when you think about really making big portfolio changes is more along the lines of what's changed for you? Is the where you are, where you want to go, how you want to get there. Has that have any of those things changed? And that really, you know, is what kind of warrants any major changes. However, with that being said, let's say that's the constant and you've built a portfolio to achieve those goals right there. You still make changes, um, sometimes more dramatic than others, but really subtle changes that are in there. And we've just gone through some. So I think this is a timely, you know, uh episode to kind of go through. If you look at what we have just gone through and done is is adjusted portfolios, tweak, kind of rebalanced, made a few minor adjustments, and I'll kind of talk about what those are. But what when you look at that, where this rebalancing of a portfolio, you know, kind of these are adjustments that need to be made. And these are just kind of very simple, you know, kind of tried and true disciplines that will work over time because we've had three straight years of very solid growth in the in the in the markets, right? Where the US market has been up or over 20% three consecutive years, you know, coming off the off the 22, which was a pretty dismal and down year, but 23, 24, and 25, all very strong performing years in the 20 plus range in return on the SP 500. And so if you haven't done anything with your portfolio as that's gone through, and you're a 60-40, you know, kind of balanced investors in when I say 60-40, 60% stocks, it's kind of the traditional 40% bonds, fixed income type of asset, kind of the traditional moderate portfolio. If you hadn't done anything or touched that in the last three years, you know, what that looks like now is that it's probably closer to 70-30, maybe, you know, maybe even edging up towards, you know, 75% to 25%. So your risk is now out of alignment, right? So you've now got more risk in your portfolio. You know, there's some advantages of kind of letting winners run for a while, but you know, but as your risk tolerance changed, again, where you are, how you want to get there, right? Go to that, go to that question right there. And that how you want to get there, even though you like the returns on the upside, now your exposure to a movement to the downside is going to be more dramatic, right? Because stocks, you know, are are a more volatile asset than bonds are, at least typically, and that's almost, you know, that's true. We'll just say that's a true statement right there. So you adjust simply on a rebalance if you don't do anything else. What I would encourage uh listeners out there to do that that aren't clients of mine is to look at that and see if that in fact has happened to your portfolio, where you know you consider yourself a moderate, and that moderate is at 60 to 65%, something like that, into stocks of various descriptions, right? U.S. market, international, et cetera, whatever kind of balance you're doing in that. But is that all of a sudden crept up to over, you know, 70, 75%, which won't put you into a growth investor category out of the moderate? And again, if nothing has changed and your risk tolerance remains the same, you just do that. So you sell high and you kind of buy low, right? You sell some of your winners, you get back to equilibrium in the portfolio, and you buy some things that are undervalued and kind of depressed, and you put your risk back into play right there. So that's one way to make a change in a portfolio as you into the new year. And it, you know, on a calendar year is a is a nice time, you know, to do that, right? To kind of clean house and kind of get, you know, take inventory of these things uh, you know, on the as the calendar moves from one year to the next. That's kind of what we do. Kind of makes sense to do, uh, but it doesn't mean that you can't do it at different times during the course of the year, certainly, uh, you know, doing reviews with advisors and whatnot. And then you also look at the underlying assets that are in there. You've got exposure into you know, large, what we call large company US stocks and medium-sized companies, small caps. And so you also look at the the underlying players that you have in these asset categories, right? So you have mutual funds or ETFs, exchange traded funds, or even sometimes individual stocks. And so you want to look at those particular assets and say, are they performing relative to what we benchmarked into, whatever the benchmark, the appropriate benchmark would be, are they performing as we would expect? Are they underperforming? Are they outperforming? Have they changed the way that they're they're doing things? And so we had uh, you know, an asset class in our our small mid-cap category as an example that was um that was underperforming, right? It wasn't, it wasn't, it wasn't giving us the performance on a relative basis to the benchmark that we would expect. So you start, you know, and we've been looking at that, you kind of watch list them over a period of time, and then you take the inventory as we did at the first of the year, and you say, well, can we find an alternative to this to this phone, let's say, that's in this asset class and make that change. So again, you're not making a you're not making a risk change, you're making a a decision on performance of finding a better, you know, one a better player for that position, right? Think about it, it's kind of like managing a you know, a baseball team or something like that. Like my second baseman, you know, is not you know, is just not hitting well, he's not fielding well. Let's go in the market and find one uh that uh that fits the bill and the culture of our team better. And so you you make a trade for that, let's say something as simple as that to kind of use an analogy like that. So there's um, you know, there's a a little bit of it there. Um, like I said, the rebalancing part though is is really the critical part. Very simple to do. Um, and adjustments that that are that are made keeps your risk tolerance intact. And you actually do that too. It doesn't have to be up markets when you do that. So we're talking about coming off of these back-to-back back years, three years in a row of upside movement in the market's significant, but also it could be on the downside. I mean, you could have come out of 2022, let's say going into 2023, you know, kind of backtracking to that to where stocks and bonds both were very poor performers. So you may not have gotten too far out of balance, but if stocks woefully underperformed bonds and bonds did well as an example, that's not what happened in 2022, using that as uh as maybe a poor example, but an example nonetheless, you would want to rebalance that portfolio and add positions, right, into the stocks that think because they went down further. So you actually want to add market exposure. So that 6040 allocation now is 5545. You would want to take 5% out of the out of the fixed income portfolio and move it appropriately, you know, back into the into the stock market, the equity part of the portfolio to get back to that equilibrium. So rebalancing works, you know, on both on the on the upside, right? On the part that everybody likes, you know, things going up. And it works on the downside as well, you know, uh what people's instincts are, though, you know, again, this is human behavior where it comes into the investment kind of, you know, investment behavior is uh is an interesting thing to watch that I've been watching for 35 years. You know, people want to let those winners run. They don't want to sell things that are that are going up in value. All right, let's let this thing continue to go, even though I've gotten out of my risk tolerance, right? They want to let that go. And then we have a conversation of why not to do that. Same thing on the downside. On the downside, if the market's, you know, it's going down, it's going down. We're coming out of 2022 as an example. I'm saying, let's rebalance, let's get this back to equilibrium and get, you know, sell some of the fixed income assets off and buy into and buy into the stock market. And people's instincts are to no, I want to get more out of stocks because they're going down, and my fear is they're going to keep going down. You know, so it's, you know, we we have the the science, if you will, of, you know, I guess is the right term, you know, a portfolio balance that we've researched and we know, you know, portfolio theory and we know all these things that we need to do, but then we have to weigh that and and and that's the battle against human, you know, psychology, right? And the preservation and the and the greed and fear and greed in it in money management is quite prevalent. Uh, and you have to manage those expectations as well as the money itself.

SPEAKER_01 10:57

So um are there any, and I know there's been a lot of talk about this in the news, are there any tax-related adjustments like contribution limits or bracket changes that that people should be aware of?

Behavior, Fear And Discipline

SPEAKER_02 11:08

No, I think you look at, I think, you know, depending on uh your contribution limits, I'm speaking to that right there, with whether it be a Roth IRA or traditional IRA, uh at under 50 years old, your contribution limits are$7,500 uh, you know, that you can put into an individual retirement account, whether it be a traditional IRA, excuse me, or or a Roth, and that's per individual. So a household, a husband and a wife can contribute$15,000 if they're under$50 and meet some other requirements, but they have that opportunity to do that. Which one they should do is a different conversation, Roth or regular. Um, but also if you're over$50, you have the catch-up provision, which allows uh for$8,500 uh of contribution limits into the individual retirement accounts. And then you have, and I can't articulate these off the top of my head, but you look at your 401k plans or or similar versions that you have, you know, through your employer, uh, and those what those caps are based on you know percentages and then also kind of you know what we call top heavy rules and things like that. So you want to look at those. So there are some some things that are in there that you want to look at. And I think those are kind of a one, you know, kind of a one size fits one, and maybe, you know, maybe at some sometime uh in the future we might you know kind of touch on what are the what were the goodies that uh that I'll use that term that were in the big beautiful bill that we might you know kind of touch on and kind of go through that at some point in time in the future. I'll leave it with this. The last what you what you want to be with a with an investment approach, I think, is as is everything in in life, it requires balance and it requires discipline. Uh, you know, and so that's what really is the story that I hopefully I conveyed this morning.

SPEAKER_01 12:59

Balance and discipline. That applies in life in general, right? I think it does. And it helps through.

SPEAKER_02 13:06

Yeah, absolutely.

SPEAKER_01 13:07

Amen. All right. Jeff, thank you again, and uh, we'll see you in the next one. Thanks, Kev. Have a great day. You too. Bye-bye.

SPEAKER_00 13:19

Thanks for tuning in to the Four Seasons Podcast, brought to you by BH Wealth Strategies, where your financial success is our priority. Schedule your free 20-minute consultation today by calling 423-247-1152 or by visiting bhretire.com. Take the first step toward making your financial dreams come true. Until next time, remember, every season is the right season to plan for your future. Securities and registered investment advisory services offered through Silver Oak Securities, Inc. Member FINRA SIPC, BH Wealth Strategies, and Silver Oak Securities, Inc. are not affiliated.