Rebalance at All-Time Highs: A Tax-Efficient Playbook

Old-school rebalancing vs the 2025 tax-aware playbook

Old-school rebalancing says you sell what got too big and buy what’s fallen behind. Clean. Mechanical. And it worked fine when gains were modest and cash paid nothing. But at, or near, new highs, after years of compounding, that blunt sell button can hand the IRS the biggest slice of your alpha. That’s the part that stings.

Here’s why the classic playbook hurts more after a multi‑year run: embedded gains get large. Selling a $100,000 position with a 40% unrealized gain means realizing $40,000. At the top federal long‑term rate of 20% plus the 3.8% NIIT, you’re writing a check for up to 23.8% of that gain, about $9,520, before you’ve improved your risk at all. And if you live in CA/NY, tack on state. I know, it’s simple math, but it explains why “just sell it” feels worse after rallies. I might be oversimplifying, but the intuition is right.

And the toolkit in 2025 is different. Cash is not dead weight. Late last year, 3‑month T‑Bills were yielding around 5.4% (FRED, Q4 2024), and cash still pays meaningfully this year, so you can use natural cash flows, interest, dividends, contributions, to nudge weights back in line without forcing taxable sales. That alone shrinks the tax bill while still addressing drift.

ETFs also changed the calculus. Because of in‑kind creation/redemption, broad equity ETFs typically avoid distributing capital gains. In 2023, most large U.S. equity ETFs reported zero capital gains distributions, while many active mutual funds did pay out gains (issuer reports; Morningstar category data). The point isn’t that ETFs are magic; it’s that structure gives you more “surgical” knobs, harvesting losses in adjacent tickers, swapping factors, or tax‑lot specific trims, without detonating a big realized gain.

But there’s a behavioral trap here, and I’ve stepped in it myself: you let winners run because paying taxes feels painful. Until risk bites. Concentration sneaks up, one sleeve drifts to 35% of the portfolio, then 40%, and a single bad quarter takes back two years of after‑tax progress. That’s the silent cost of avoiding a realized gain: you’re swapping known tax for unknown drawdown.

What you’ll get from this section: a quick contrast between “sell what’s up, buy what’s down” and a 2025 playbook that uses cash yields, ETF structure, and tax‑lot decisions to rebalance at or near highs with less friction. We’ll also call out the traps that push smart people (again, been there) to postpone action until it’s too late.

• When blunt selling works: low‑gain markets, short holding periods, or sheltered accounts.
• When it backfires: after multi‑year rallies with 20-50% embedded gains and top federal rates up to 23.8% on long‑term gains.
• What’s different in 2025: cash paying ~4-5% this year helps fund trims; ETF structures reduce capital‑gain distributions; direct indexing and tax‑lot tools let you be precise.
• The human part: taxes feel immediate, risk feels abstract, until a concentrated drawdown makes it very, very real.

We’ll get tactical in a second, harvesting rules, what to sell first, and the one move I mentioned earlier that avoids realizing gains entirely. But the headline is simple: at highs, rebalancing should be more surgical, not more heroic.

First, anchor your targets and tolerance bands

Before touching a single lot, write the policy. Seriously, on one page. Targets, allowed drift, and when you rebalance. It sounds basic, but this is the whole engine. Without it, you’ll react to prices and headlines (and I’ve done that, and regretted it).

Set strategic weights: pick the long-run mix that matches your plan and tax reality. Example: 60% stocks, 30% bonds, 10% diversifiers. Keep it simple enough that you’ll actually maintain it. In 2025, with cash yielding ~4-5% in many money market funds and T‑Bills, it’s tempting to let cash bloat. Don’t let yield-chasing turn into policy drift. Cash is a sleeve; give it a target too, even if it’s 2-5%.

Define 5/25 tolerance bands so you’re not whipsawed by small moves. The classic rule: for core sleeves (≥20% targets), use ±5 percentage points around target. For smaller sleeves (<20% targets), use a relative band of ±25% of the target. Two quick examples:

• U.S. equities at 40% target → band is 35% to 45%.
• Emerging markets at 8% target → band is 6% to 10% (that’s 25% of 8%, ~2%).

This avoids trading on noise and keeps you from “feeling smart” for trimming after every 1-2% pop. You want rules that let you act when it matters, not constantly.

Automate the cadence, not the trades: run a quarterly check, but only trade if you’re outside the bands. I like calendar reminders the first week after quarter-end. Q3 check, then Q4, etc. You can look monthly, I sometimes do, yet only push the button when something breaches. It’s the “always watch, rarely act” approach. Same idea, slightly different words: look often, trade less.

Use cash flows first: new contributions, bond maturities, and dividends should nudge you back toward target without selling. In taxable accounts, that’s gold. In 2025, dividend yields on broad U.S. equities sit around 1-2% (varies by fund), and most clients I see have at least quarterly cash hitting the account. Point those flows at whatever’s below target. If U.S. stocks drift up to 47% vs. a 40% target, direct new cash to everything else, bonds, international, your diversifier sleeve, until you’re back inside the 35-45% band. If you’re at 46% (barely outside), flows over a quarter or two can do most of the work without realizing gains.

Only sell when you must: if flows can’t close the gap, say you’re at 50% vs. a 40% target, then trim, but do it surgically (we’ll get to the lot order later). Remember, long‑term gains are taxed up to 23.8% at the federal level when the NIIT applies. That’s not a rounding error. And with ETFs continuing to minimize capital‑gain distributions in 2025, you often get better tax outcomes by redirecting flows and swapping around the edges rather than blasting out big blocks.

One practical tip: write your rule as a sentence you can read out loud: “Every quarter I check; if any sleeve is outside its 5/25 band, I first use cash, dividends, and maturities to move it inside; only then do I sell, and only enough to re‑enter the band.” That’s it. Clear beats clever. And yes, sometimes you’ll be off by around 7% for a month because a rally outran your cash, don’t overcorrect. The band is there to keep you honest and keep you calm.

Small caveat, data: our research pull for “how-to-rebalance-at-all-time-highs-tax-efficiently” didn’t surface fresh quantified studies in Q3 2025. That’s fine. The 5/25 framework is well‑worn, and the real‑world inputs we do know this year, cash near 4-5%, ETFs’ tax efficiency, and last year’s large embedded gains for many investors, are enough to set policy now.

The order of operations: where to trade so taxes don’t eat you

Here’s the practical sequence I use on my own accounts when markets are stretched and I want the risk back in line without lighting a tax flare. It’s not perfect, because nothing is, but it’s simple and it works… most of the time. When it doesn’t, you at least know why.

1. Do the heavy lifting in tax-advantaged accounts first (401(k), IRA, Roth IRA, HSA). Sell and buy there to yank big allocations back into the band. No capital-gains tax, no NIIT drama, no state tax. If you have both pre-tax and Roth, prefer trading in the pre-tax first to avoid touching Roth basis you might want growing untouched. And don’t forget the HSA, triple tax advantage. I still see folks treating HSAs like a checking account; try to invest it and use other cash for medical costs if you can swing it.
2. In taxable, prefer ETFs for the “edges” of the rebalance. Use ETFs where possible instead of mutual funds to trim/add because of distribution mechanics. This isn’t a theory thing: in 2023, roughly 90% of U.S. ETFs paid no capital-gains distribution, while over half of open-end mutual funds did make a payout in December (source: industry year-end distribution reports). When you must hold active equity, consider the ETF share class if available, same strategy, usually fewer surprise distributions.
3. Turn on, really turn on, specific-lot identification. Most brokers default to FIFO unless you select Specific ID and designate the lots before settlement. That choice is the difference between realizing a short-term gain at your ordinary rate versus a long-term gain at capital-gains rates. Quick refresher: the annual capital loss deduction against ordinary income is still capped at $3,000, and the 3.8% Net Investment Income Tax (NIIT) kicks in at $200,000 of modified AGI for single filers and $250,000 for married filing jointly, those thresholds were set years ago and haven’t moved (ACA-era levels). Small toggles matter here.
4. Favor long-term over short-term when selling. If you can reach the same risk outcome by selecting a 14-month lot instead of a 7-month lot, do it. In 2024, the long-term capital-gains 0% band went up to about $47,025 (single) and $94,050 (MFJ); above that you’re typically at 15% until you reach the 20% band. Even if your personal 2025 thresholds are a bit higher from inflation adjustments, the point holds: crossing bands changes after-tax results a lot.
5. Watch the NIIT cliff and state taxes together. I see this mistake constantly: someone realizes an extra $10-20k in gains “to be done with it,” trips the NIIT, and effectively adds 3.8% on top of their 15% federal capital-gains rate, and then there’s state. California’s top marginal rate is 13.3%, New York’s is 10.9% (rates in effect last year), and neither distinguishes long vs short-term. That means your “cheap” rebalance can migrate from 15% to 18.8% federally, then another 10-13% at the state level. Not catastrophic, but it stings. Sometimes waiting until January, or spreading sales across two tax years, keeps you under a threshold with the same risk outcome.

Put differently: shove the big boulders in the nontaxable accounts, use ETFs in taxable for the fine-tuning, and be surgical with lots. If you’re within, say, half a percent of target, maybe just redirect dividends and new cash for a quarter. Don’t force a sale that pushes AGI over the NIIT line for no real risk improvement.

Checklist I read out loud before clicking sell: “Can I fix this inside the 401(k)/IRA first? If not, can I swap into an ETF in taxable? Do I have specific-lot turned on? Is this going to flip me into NIIT or a higher state bracket? And is there a long-term lot I can use instead of short-term?”

One last practical bit from this year’s context: with cash still around 4-5% on many high-yield accounts, you can often meet half your rebalance needs by steering income and maturities for a quarter instead of realizing gains today. Yes, it’s slower. Yes, it’s a little messy. But messy and cheap beats tidy and taxable.

Make your winners useful: charitable giving, gifting, and cash overlays

When markets are pressing highs and losses are scarce, I’d rather put appreciated shares to work than sell and write a check to the IRS. Two birds, one stone. Or three. Here’s what I mean.

Donate appreciated shares instead of cash. If you’re giving anyway this year, move long-term appreciated stock or ETF shares directly to the charity or into a donor-advised fund (DAF) before Dec 31. You skip the capital gain and, if you itemize, you can deduct the fair market value. The law is pretty clear here: donations of long-term capital gain property to public charities/DAFs are deductible up to 30% of AGI, while cash gifts are up to 60% of AGI (IRS rules; these limits have held in recent years). One practical angle: bunch a few years of giving into a DAF in 2025, then grant out slowly. That lets you take the deduction in this tax year while smoothing the charitable budget for the next few. I’ve done this a couple times and, confession, I liked the admin dashboard way more than I expected.

Retirees: QCDs can lower your AGI, then sell winners elsewhere. If you’re 70½ or older, a Qualified Charitable Distribution (QCD) from a traditional IRA sends money straight to charity and keeps it out of AGI. That can help with IRMAA brackets and state taxes. For reference, the QCD limit was $105,000 per person in 2024 after SECURE 2.0 added inflation indexing. The IRA custodians make it pretty simple now. The twist I like this year: pair the QCD with trimming appreciated positions in taxable. You meet the charitable goal without boosting AGI, and you can then realize gains in taxable up to the top of your 0%/15% bracket on your terms. Messy? A little. Effective? Yep.

Gifting appreciated stock to family members in lower brackets. If you’ve got adult kids or parents in lower brackets, gifting shares lets the gain be taxed at their rate. Watch two guardrails: the annual gift tax exclusion was $18,000 per recipient in 2024 (check the 2025 number, may be the same or slightly higher), and the kiddie tax still bites. In 2024, a child’s unearned income above $2,600 is taxed at the parents’ top rates; the first $1,300 is exempt and the next $1,300 is at the child’s rate. For long-term capital gains, the 0% bracket in 2024 ran up to about $47,025 for single and $94,050 for married filing jointly. If the recipient sits inside that, harvesting gains at 0% is… pretty nice.

Use cash overlays to rebalance softly. If your big winners are overweight, add new cash and dividends to the underweights first. With cash yields still around 4-5% this year on many high-yield savings and money market funds, you can redirect a quarter or two of income to close half the gap without touching taxable gains. Then, stage any necessary sales across months to manage AGI and state brackets. I know patience isn’t fun when a position feels toppy. Been there. But forcing a sale in September that shoves you into NIIT territory rarely feels smart in April.

Quick thresholds I keep taped to the monitor: NIIT kicks in at $200k single / $250k MFJ of MAGI (law’s been the same for years). Charitable LT appreciated property deduction cap: 30% of AGI. Cash gifts: 60% of AGI. QCDs don’t hit AGI. And yes, check your state, some have their own cliffs.

Putting it together, a simple playbook that works at highs:

• Identify the biggest percentage winners you’d be happy owning less of.
• Move those shares to a DAF for this year’s giving, up to your AGI target.
• If retired and charitably inclined, send part of the plan via QCD from the IRA to keep AGI down, then realize gains in taxable within your desired bracket.
• Gift select lots to low-bracket family where appropriate, staying under the annual exclusion and kiddie tax lines.
• Point new cash and dividends at the underweights now, then schedule any remaining trims across Q4 and into early next year.

Is this a little complex? Yeah. The interlock between AGI, NIIT, IRMAA, and state brackets makes it a 4D chess board some days. My take, admittedly just my take, is you earn your edge at highs by being patient and using the tax code’s doors that are already open. I was going to add one more trick here about loss harvesting… except we don’t have many losses right now, do we?

Harvesting and hedging when everything’s green

When your screen is a sea of green, you don’t have to smash the sell button to manage risk or taxes. You can create offsets. Two quick paths: find micro-losses and add light hedges.

Scan for micro-losses. Even in up years, you’ll usually find tiny red pockets. Direct indexing makes this obvious because you see every lot. If you’re in funds, run an ETF “sleeve swap”: sell one ETF and buy a similar, not substantially identical, peer to keep exposure while realizing a loss. Mind the wash-sale rule’s 30-day window (Internal Revenue Code §1091). I’ll say it bluntly: swapping into a product that tracks the same index could be risky because “substantially identical” isn’t precisely defined. Use distinct indexes, different methodologies, or a basket. And remember the basics: realized capital losses first offset capital gains, then up to $3,000 of ordinary income per year (per IRS rules in 2023-2024). Carry the rest forward indefinitely.

Use the carryforwards you already have. A lot of folks still have leftovers from 2022’s growth-stock drubbing. If you’ve got capital loss carryforwards sitting on Schedule D, apply them against this year’s realized gains before you do anything fancy. It’s boring. It works. And yes, ordinary income offset remains capped at about $3k per year under current law (as of 2024), so let the big offsets hit gains first.

Collars and covered calls. Want to tame equity beta without triggering taxes? Two tools:

• Covered calls: overwrite a portion of a position. The CBOE BuyWrite Index (BXM) has historically shown lower volatility than the S&P 500 with somewhat lower long-run returns over 1988-2023; premium helps in flat-to-down tapes while you defer selling. Premium varies, but in quiet markets you might see around 0.7-1.2% per month gross on broad indexes, call it “around 1%,” then haircut for slippage and taxes. Short-term premium is typically taxed at ordinary rates, so location matters.
• Collars: buy a put, sell a call. You cap some upside to finance downside protection. In practice I’ll collar a concentrated name into catalysts or earnings. You can stage it, quarterly maturities instead of one big bet. Is this getting complex? It is. But it’s still easier than explaining a surprise 20% drawdown to your future self.

Concentrated single stocks. Two paths I keep in the toolkit when a winner is now “career risk” in a brokerage account:

• Exchange funds: contribute appreciated shares into a partnership with other holders to get a diversified basket without immediate tax. Typical structures carry a ~7-year lockup and small cash drag. You’re swapping single-name risk for basket risk while preserving deferral.
• 10b5-1 plans: pre-scheduled, rules-based selling. After the SEC’s 2023 amendments, officers/directors generally have a 90-120 day cooling-off period, only one single-trade plan at a time, and new certification requirements. The point is discipline: you turn a tempting button into a boring schedule, tranches across price bands or time.

Quick reality check: equities post negative calendar years roughly one out of four since 1926 based on long-run S&P 500 history, and the average intra-year drawdown has been in the mid-teens according to multi-decade market studies. That’s my way of saying hedging isn’t paranoia; it’s budgeting for normal volatility. When everything’s green, harvest tiny losses where you can, use any carryforwards, and rent some protection or premium while you wait for better sell windows. Simple? Not exactly. Effective? Yeah, usually.

2025 timing quirks: distributions, sunsets, and calendar strategy

Here’s what’s quirky right now. We’re heading into Q4 with indexes not far from highs and the presidential race turning the volume knob to 11. That combo tends to create bad decisions, usually chasing, sometimes freezing. The playbook I’m using with clients (and frankly with my own stuff) is boring on purpose: respect the calendar, respect your tax bracket, and let rules, not headlines, do the heavy lifting.

• Mutual fund capital gains distributions hit in Q4. Most active mutual funds post capital gains in November-December, record dates typically fall late Nov through mid-Dec, so buying right before a record date can hand you a taxable distribution on gains you never participated in. Fund companies will start posting estimates in November; check the distribution calendar on the fund’s site before adding. If you like the strategy but timing is tight, consider ETFs or wait until after the record date to avoid the “phantom” gain. Tiny thing, big tax annoyance, I’ve learned that one the hard way.
• Sunsets are on the clock. The individual rate provisions from the 2017 tax law are scheduled to expire after 2025. If you’re in a bracket that’s lower this year than what you expect later, realizing some long-term gains in 2025 can reset basis while keeping your lifetime tax bill in check. I’m not saying blow out of positions; I am saying compare your projected 2025 taxable income to 2026+ under current law. If ordinary rates step up for you next year, coordinating some Roth conversions and selective gain realization this year can make sense while brackets are friendlier.
• Stage rebalancing over 3-6 months. With markets elevated, spreading trades reduces regret risk and smooths tax lots. A simple schedule, monthly or even every other Friday, can work like a TWAP. You don’t need to be cute about it. Hit your target weights gradually and be mechanical. Historically, equities post a negative calendar year about one out of four since 1926, and the average intra-year drawdown has lived in the mid-teens across decades. Translation: odds are you’ll get a few decent windows to trim/add without guessing tops or bottoms.
• Election-year noise later this year. Volatility often picks up into late October/early November in election years. Don’t let the cable-chyron cycle set your trades. Use tolerance bands, say ±20% around your target dollar weight for each asset class, and rebalance only when a sleeve breaches a band. That gives you a rules-based trigger while headlines come and go. If you want a small buffer, widen the bands through mid-November and tighten them back after the dust settles.

A couple of practical add-ons, because this is where folks get tripped up:

• Check lots and wash rules. When you stage sales over months, pre-map which lots you’ll use (highest-cost first is my default for trimming equity funds; watch short vs long). And if you’re tax-loss harvesting on the side, mind the 30-day wash sale window, stagger your replacement securities if needed.
• Distribution-aware replacements. Swapping from an active fund with a big pending distribution into an ETF or a similar, more tax-efficient fund can save you the year-end tax hit without changing your exposure much. If you must hold the active fund, add after the record date.
• Cash flows do the quiet rebalancing. Redirect dividends and new contributions to the underweight sleeve. It’s invisible rebalancing, and yes, it works, especially over a 3-6 month push.

My take, and it’s just that: Q4 doesn’t require heroic timing. It requires avoiding unforced errors, buying right before a distribution, letting an expiring bracket slip, or letting a headline yank you outside your plan. Keep the bands, stage the trades, peek at fund calendars, and use the 2025 bracket landscape to your advantage. Boring is good here, boring is how you finish the year cleaner and set up 2026 without a tax hangover.

Bring it home: tax-aware doesn’t mean timid

Here’s the bigger picture: you’re managing risk, cash flow, and behavior. You are not trying to win a purity contest with the tax code. Perfection is expensive; discipline compounds. I’ve watched more wealth get sidetracked by tax gymnastics than by plain-old market volatility. You want the least tax friction, year after year, while the plan keeps compounding, even when markets are noisy and, like now in Q3 2025, bumping around near highs after a pretty tech-heavy run.

So the rules of the road don’t change at the finish line:

• Rebalance by rule. Use bands and dates, not vibes. If your 60/40 drifted to 66/34, clip it back mechanically. Cash flows do half the work; trades do the rest. Systematic beats sporadic, always.
• Prefer tax-advantaged accounts. Keep the tax-inefficient stuff (high-turnover funds, taxable bonds) in IRAs/401(k)s when you can. Save the taxable account for broad-market ETFs, munis, and your long-held compounders.
• In taxable, use specific lots. It’s a scalpel, not a sledgehammer. Harvest losses without blowing up your core exposure, and trim gains off the highest-basis shares first. Vanguard’s 2020 research puts typical tax-loss-harvesting benefit around ~0.2%-0.5% a year after tax; some managers show 1%+ in volatile years, but that’s not a promise, context matters.
• Turn gains into impact. Highly appreciated positions can fund Donor-Advised Funds (DAFs), direct gifting to family, or a cash overlay for spending. The National Philanthropic Trust’s 2024 report (reflecting 2023 data) shows DAF grants around the low-$50 billions and charitable assets near ~$230B, this isn’t niche anymore, and donating long-term appreciated stock sidesteps capital gains while preserving your cash.
• Use modern tools without stepping on rakes. ETFs are still tax workhorses, Morningstar data show that ~90% of U.S. ETFs paid no capital gains distribution in 2023. Direct indexing lets you harvest losses while keeping index-like exposure. Options can reshape risk in a taxable-friendly way (e.g., collars) if you avoid constructive sale landmines (IRC §1259) and watch the 30-day wash-sale clock. Close substitutes count, don’t swap S&P 500 Fund A for S&P 500 Fund B and expect a clean loss.

Two things I repeat to clients and, honestly, to myself: first, winning a single trade is irrelevant if it knocks you off policy and creates a tax mess you babysit for years. Second, “good enough” tax-aware behavior done consistently usually beats “perfect” tax schemes that only work on paper. ETFs where they fit, direct indexing where it’s worth the basis complexity, and options where the payoff matches your risk budget, used sparingly, not as a personality.

Final thought before we close the book on Q3: success is staying on plan with the least tax friction, year after year. You won’t nail every wash-sale nuance or catch every distribution calendar. That’s fine. Keep rebalancing by rule, fund the tax-advantaged buckets, gift appreciated shares when the basis is laughably low, and let time do its compounding. Boring still wins. And it’s a lot cheaper than perfection.

Frequently Asked Questions

Q: Should I worry about triggering a big tax bill if I rebalance at all‑time highs?

A: A little, yes, but don’t freeze. Prioritize using cash flows first: sweep T‑Bill interest, dividends, and new contributions toward underweights. Then do specific‑lot selling to trim highest‑basis shares, aim for long‑term gains, and respect state taxes. If a position is a risk outlier, cap the realized gains with a “tax budget” for 2025 and fix the rest over a few quarters. Better than ripping the whole Band‑Aid.

Q: How do I rebalance tax‑efficiently when my winners ran way past target?

A: I’d stage it. Step 1: turn off dividend reinvestment on the overweights and direct all income/new money to the laggards. Step 2: harvest losses in adjacent tickers or factors to create a loss “shield.” Step 3: sell specific lots of the overweight, highest basis first, to keep gains long‑term and inside a pre‑set cap (say $10k-$25k of realized gains for 2025). Step 4: consider donating low‑basis shares to charity or gifting to family in lower brackets. And if you need to hold exposure, use a similar, but not identical, ETF for 31+ days to avoid wash‑sale headaches.

Q: What’s the difference between using ETFs vs mutual funds for tax efficiency when rebalancing?

A: Broad equity ETFs typically avoid capital gains distributions because of in‑kind creations/redemptions. Many mutual funds, especially active ones, can distribute gains even when you didn’t sell, tax by surprise. In 2023, most large U.S. equity ETFs paid zero capital gains distributions, while plenty of active funds did (issuer/Morningstar data). Practically, that means you can rotate factors or tickers with ETFs, harvest losses, and do specific‑lot trims without inheriting someone else’s embedded gains. With mutual funds in taxable accounts, I prefer tax‑aware share classes or just use ETFs for rebalancing moves. In IRAs/401(k)s, this matters less, trade what’s best pre‑tax.

Q: Is it better to wait and use cash flows to rebalance, or should I sell now and reset my targets?

A: It depends on two things: risk and tax math. Here’s how I make the call for clients, and for my own account, frankly.

1. Define risk bands. If your target is 60/40 and you’re at 68/32, that’s outside a 5/20 band (5% absolute or 20% relative). Outside the band suggests action.

2. Price the tax. Estimate realized gains by lot. Favor long‑term (one year+) and high‑basis shares. At the top federal LT rate (20% + 3.8% NIIT = 23.8%) plus state, a $40k gain could cost ~$9.5k federally before state. If the tax is huge, stage it.

3. Max out frictionless fixes first. Redirect all T‑Bill/CD interest (cash still pays meaningfully in 2025), dividends, and new contributions to underweights. Turn off DRIP on overweights. This alone can close a few percent of drift over a quarter or two.

4. Use substitutes to keep exposure. If you must trim, sell specific lots and swap into a similar ETF (not identical) to maintain market exposure and reset basis. Avoid wash sales on loss legs with a 31‑day window.

5. Set a tax budget. For example, cap 2025 realized gains at $15k, revisit in December (or early 2026). If concentration risk is extreme, say one stock &gt;15% of net worth, accept more tax now. I hate overpaying taxes too, but single‑name blowups hurt worse.

Net: if drift is mild and cash flows are strong, wait and nudge. If bands are blown and concentration is real, sell some now, surgically, and finish the job over a few quarters.

@article{rebalance-at-all-time-highs-a-tax-efficient-playbook,
    title   = {Rebalance at All-Time Highs: A Tax-Efficient Playbook},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/rebalance-at-highs-tax-smart/}
}