Year-End Insights for Long-Term Portfolio Resilience
Share on LinkedIn
Share via Email
Save as PDF
Ever heard the term “Santa Claus Rally?” It was first used in 1972 to describe the stock market’s tendency for gains during the last five trading days of December through the first two trading days of January.
This year, it might feel like Santa Claus came early, with the U.S. stock market (as measured by the Russell 3000) up more than 17% through November. In fact, investors across all major asset classes have seen positive results over the past few years. Stock and bond markets had strong recoveries, with the most recent Federal Reserve rate hike cycle tapering off in December 2022 and later ending in 2023.
| Index | 2023 | 2024 | 2025 | 3-Yr | Long Term Average (Since 1999) |
| Tax-Free Municipal Bond | 6.4% | 1.1% | 4.0% | 3.9% | 4.0% |
| Barclays Aggregate Bond Index | 5.5% | 1.3% | 6.7% | 4.6% | 3.9% |
| High Yield Credit | 13.5% | 8.2% | 8.0% | 9.6% | 6.5% |
| Russell 3000 | 25.9% | 23.8% | 17.2% | 19.8% | 8.9% |
| MSCI ACWI ex US | 22.2% | 17.5% | 21.3% | 18.6% | 6.9% |
With equity market valuations still sitting near all-time highs, and positive returns across all major asset classes, you may be questioning if you should make a change to your investments. Because strong markets alone do not justify making a change to your investment strategy, here are three practical steps you can take as you think about year-end due diligence:
Review your Asset Allocation
Asset allocation, namely your mix of stocks and bonds in your portfolio, will be the primary driver of investment return. Investment discipline includes maintaining the proper asset allocation over time. Year-end may present an optimal time to review your allocations. At Tolleson, our process for rebalancing is to frequently review a portfolio’s current allocation relative to its intended target and rebalance when asset classes have drifted above or below their threshold.
If you do not have a process for systematically rebalancing your portfolio, it is usually worthwhile to review your asset allocation at least annually. For example, a 60% stocks and 40% bonds portfolio that has remained untouched for the last three years could have shifted to 70% stocks and 30% bonds today. Left unchanged, your portfolio may no longer be appropriate for your desired level of risk.
Understand your Risk Tolerance
In addition to return goals, your tolerance for risk is the second primary driver when determining a proper asset allocation. This year had its share of market risk with U.S. Stocks (again as measured by the Russell 3000) falling 21% from February 19 to April 7. Having an investment strategy based on your goals can help you through market turmoil.
In August, investors were rewarded for their patience and the U.S. Stocks made new all-time highs. Experiencing periods of market turbulence can be a great test for investors’ risk tolerance. If the overall volatility of your portfolio caused you to feel concerned, then a change to your investment strategy may be warranted.
Knowing your Liquidity Needs
The last item to consider when reviewing your portfolio and planning for the coming year is your liquidity needs. Ask yourself, what are your cash needs over the next one to two years? Do you have enough cash or access to liquidity to cover those needs? For clients living off their portfolio, we recommend keeping nine to 12 months’ worth of spending in cash equivalents and at least another three to five years’ worth of potential spending needs in bonds and fixed income. Our team at Tolleson helps to work with clients to design and maintain an investment strategy that works for their goals.
As you close out 2025 and begin to look towards 2026, incorporating these three steps when reviewing your investment portfolio can help keep your investment strategy on track for your goals. Tolleson remains dedicated to providing thoughtful guidance and support tailored to each client’s unique financial needs and objectives.
General Performance Information: The performance results in this presentation have been compiled by Tolleson Wealth Management (“TWM”). Past performance is no guarantee of future results. No representation is being made that any account will or is likely to achieve profits or losses. All investments involve risk, including the loss of principal. A client’s return will be reduced by the advisory fees and other expenses. TWM’s advisory fees are described in Part 2a of our Form ADV. This information discusses general market activity, industry or sector trends, or other broad-based economic market or political conditions and should not be construed as research or investment advice. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Opinions expressed are current opinions as of the original publication date appearing in this material only. Any opinions expressed are subject to change without notice and TWM is under no obligation to update the information contained herein. TWM disclaims responsibility for the accuracy or completeness of this report although reasonable care has been taken to assure the accuracy of the data contained herein. This material has been prepared and is distributed solely for informational purposes only and is not a solicitation or an offer to buy a security or instrument or to participate in any trading strategy. This report may not be reproduced, distributed or transmitted, in whole or part, by any means, without written permission from TWM. If you have any questions regarding this presentation, please contact your TWM representative.
Index Disclosure: The returns and volatility of the indices displayed may be materially different than the client’s account, and a client’s holdings may differ significantly from the securities that comprise the indices. The indices are disclosed to allow for comparisons to well-known and widely recognized indices and may or may not be appropriate for performance comparisons. An investor cannot invest directly in the index.