How Portfolio Rebalancing and Tax-Loss Harvesting Help Austin Wealth Management Improve Client Outcomes

December 6, 2025  | By Parker Manson

Behind every AWM advisor is a dedicated team of investment professionals meticulously looking at each client account and watching for opportunities to improve our clients investment performance, while making sure their strategy is followed to a tee. Two of the most powerful tools we use to achieve this are rebalancing and tax loss harvesting.

Most people have heard of investment rebalancing and have observed buys and sells executed within their accounts by advisors. What may be less clear, however, is the underlying rationale for these trades; they are a manifestation of the continual goal of maintaining your investment strategy. Rebalancing is the ongoing process of realigning your portfolio to its given risk profile based on market movements. 

Consider a hypothetical client with a target allocation of 60% stocks and 40% bonds. Markets are rarely static, and a strong equity rally could push that mix to 70% stocks and 30% bonds. This shift meaningfully increases the portfolio’s risk—both by overweighting the more volatile asset class and by reducing the stabilizing, income-producing role of bonds. The way to correct this drift and bring the portfolio back in line with its intended risk profile is rebalancing.

Austin Wealth Management takes an active and structured approach to rebalancing. Our process begins by segmenting client accounts into groups, each with its own rebalancing cadence. Accounts with a higher degree of complexity are reviewed and rebalanced monthly, while less complex accounts follow a quarterly schedule. We separate accounts by total household value not arbitrarily, but because complexity tends to rise with household size. In other words, the mechanics required to keep a $50,000 account aligned with its target allocation differ significantly from those required for a multi-million dollar account to achieve the same results. 

Imagine two accounts, both invested 60% in stocks and 40% in bonds — one worth $50,000, the other $5,000,000. If the stock market jumps 10% in a month, the smaller account gains about $3,000 in equity value, while the larger account gains $300,000. Although the percentage change is the same, the large account takes on far more unintended equity risk.

For big portfolios, even small allocation shifts can significantly change overall risk. Larger accounts often include legacy holdings or low cost-basis securities, making rebalancing more complex. It’s not just about reassigning percentages — you must also consider taxes and the order of trades to stay aligned with long-term goals.

Smaller accounts, by contrast, often change due to deposits or withdrawals, which tend to be invested quickly. For those accounts, rebalancing quarterly is usually enough — it’s simpler, effective, and brings the portfolio back to target without big tax concerns.

While rebalancing keeps portfolios aligned with their intended risk, an equally powerful tool in investment management is tax-loss harvesting. Tax-loss harvesting is the strategic process of realizing an investment loss today in order to reduce future tax burdens. When an investment declines below its purchase price, we can sell it, lock in the loss, and immediately reinvest the proceeds into a similar holding. This ensures your market exposure remains consistent while the realized loss can be used to offset capital gains elsewhere in your portfolio.

Harvested losses function as valuable components of long-term tax management and can be applied in three primary ways. 

• First, they may be used to offset capital gains realized during the year, whether those gains originate from organic portfolio appreciation or from systematic rebalancing activity. 
• Second, when realized losses exceed realized gains, they can be applied annually against ordinary income. 
• Third, any remaining unused losses are carried forward into the following year or further, effectively creating a multiyear tax asset that can be deployed to mitigate future capital gains as they arise. 

Corporations likewise benefit from the strategic utilization of capital losses, often at a far greater scale. A memorable example occurred during the 2008 financial crisis, when the insurance giant AIG reported the largest quarterly loss ever recorded, an eye watering $61.7 billion dollar loss! While catastrophic from a business standpoint, the resulting tax loss carryforwards were, shall we say, robust. If nothing else, it proves that even in the most calamitous market environments, the tax code can still deliver a small measure of good news; one of the rare moments where it feels oddly helpful.

Whether the market is up or down, there are often opportunities to increase your portfolio value, even if value is not created with immediate returns. At Austin Wealth Management, tax-loss harvesting is not simply an end-of-year cleanup, it is an ongoing process, monthly for our simpler tiered accounts and daily for our more complex tiers. Our trading and investment operations teams continuously screen taxable accounts for opportunities, identify suitable replacement funds to avoid wash sale restrictions, and ensure it aligns with your broader financial plan. Over time, these incremental tax advantages can significantly improve a client’s after-tax returns and enhance long term wealth outcomes.

The true value of rebalancing and tax-loss harvesting is not found in any single trade or tactical adjustment, but in the disciplined, repeatable structure that underpins both processes. Disciplined rebalancing and tax-loss harvesting form not only the backbone of our investment approach, but the quiet, dependable engines of long-term client success.