Avoiding wash-sale rule pitfalls

Your portfolio might be due for an end-of-the-year cleanup. The Morningstar US Market Index is up about 15% through mid-November 2025, and overall performance has been strong for years (even after 2022’s down market). That said, some stock sectors have performed significantly better than others, and performance can vary widely even within a sector. That could mean you’relikely holding some winners and some losers. Tax-loss harvesting could help trim your tax bill to save some money. While you’re tuning up your portfolio, it could also be a good opportunity to bring your asset allocation back into balance. Morningstar portfolio strategist Amy Arnott is here to explain how to pull off both strategies.

How to Rebalance Your Portfolio in a Lofty Market https://www.morningstar.com/portfolios/how-rebalance-your-portfolio-lofty-market

On this episode:

00:11 Welcome

01:03 What is tax-loss harvesting, and how does it work?

01:41 Is a brokerage or retirement account better suited for tax-loss selling? Why?

02:12 The US stock market has experienced solid growth so far in 2025. Do up markets make it harder to spot losses?

02:52 Why is tax-loss harvesting still a good strategy even when times are good?

03:32 Where can investors find losses to offset gains in their portfolio this year? Let’s start with stocks.

04:33 And what about mutual funds and ETFs?

05:17 Can you explain what wash-sale rules are, and how to play by the IRS’ rules?

06:39 What are some other strategic ways to take advantage of the losses?

07:55 In the spirit of tuning up our portfolio, this might be a good time to rebalance. How does that work, and why can it be an emotional challenge sometimes?

09:14 The 60/40 portfolio might need rebalancing. What’s happened over the past decade?

09:43 And what about growth versus value and US versus international stocks?

10:44 What are a few tips on how to restore balance to a portfolio?

12: 48 What is the takeaway for taking this time of year to do tax-loss harvesting and rebalancing?

Watch more from Morningstar:
Bond ETFs Are Surging in Popularity in 2025. Here Are 5 of the Best

Investors Still Need to Mind the Gap in Their Funds’ Returns

The US Dollar Is Weak. Is Your Portfolio at Risk?

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