Retirees, It’s Time for Your Year-End Portfolio Review. Here’s What to Do.

(Illustration by Jori Bolton)

A good year for stocks—and big gains in tech—may be making your portfolio too risky. How to get it in shape for 2026.

It’s always smart to take stock of your portfolio in December, but this year it’s especially key. The investment landscape may be shifting, and retirees can’t afford to coast into 2026 on autopilot.

The S&P 500 and the Nasdaq Composite are posting their third consecutive year of double-digit returns. Artificial intelligence has been the market’s lifeblood, but it’s debatable how much longer the AI trade will last. Also unknown is the impact of AI on corporate profits and the economy—and how that will impact markets.

“We have yet to see how the AI-driven productivity boom plays out,” says Kevin Khang, senior international economist at Vanguard.

If the tech bulls are right, AI could become as transformative as electricity, he says. That would keep propelling equities and economic growth. It’s also possible that AI’s impact will be more subdued, while the U.S. grapples with rising debt and deficits.

For the next few years, “it will be a horse race between AI and deficits,” Khang says.

Many investment pros expect the stock market to keep rising in 2026. CFRA Research sees the S&P 500 at 7400 by the end of 2026. That would be an 8% gain from recent levels around 6860. Historically, midterm election years are extra volatile for markets, according to CFRA Chief Investment Strategist Sam Stovall. But he sees a more muted market chugging ahead on the back of the Fed’s rate-easing cycle and double-digit earnings growth expectations for 2026 and 2027.

Another good year is no guarantee, though. And investors may have forgotten how to play defense after a long stretch of gains. If the economy tips into a recession, the market will almost certainly fall. If your portfolio isn’t ready, you could face steep losses.

Here are some ways to prepare, and year-end moves to consider.

Consolidate Your Accounts

It’s hard to take a holistic view of your portfolio when your investments are scattered. Nearly a third of near-retirees reported having two or more 401(k)s, according to Allspring’s 2025 Retirement Study. If you suspect you have lost sight of an old account, you can search the government’s retirement savings lost-and-found database.

Investors may think they are diversifying by spreading their money around at different firms. What matters is your asset mix, regardless of where it’s held.

Having multiple accounts at different firms may also be more trouble than it’s worth, says Bethany Dever, a certified financial planner at Rockland Trust. Investors can lose sight of proper rebalancing, performance tracking, and tax reporting, she says, and they may miss out on volume discounts for bigger balances.

More investors are getting the message. From 2024 to 2025, the share of households with investible assets of $1 million to $4.9 million at only one financial institution jumped 11 percentage points to 22%, according to research firm Hearts & Wallets.

Even if you’re comfortable juggling accounts across multiple firms, chances are your loved ones won’t be. Once the primary money manager in a couple becomes infirm or dies, “it’s a burden on the spouse to have all these accounts,” Dever says. What’s more, many financial institutions have their own power-of-attorney protocols. The fewer of them your loved ones have to deal with, the better.

(Illustration by Jori Bolton)

Keeping your accounts at one brokerage should provide enough protection against fraud or a firm going bankrupt. Major brokerages carry excess coverage well above the SIPC insurance of $500,000 per account type per member firm. This coverage doesn’t protect against market losses, just brokerage failure and certain kinds of fraud. By contrast, FDIC insurance protects cash up to $250,000 per depositor per bank. Savers with higher cash balances have an incentive to spread their money across different institutions.

Diversify, Truly

With your investments in one place, it’s easier to tell if your asset mix is aligned with your goals. Your portfolio will drift according to the underlying performance of stocks and bonds, so your balance can get out of whack over time. Investors who began retirement 10 years ago with a portfolio of 60% stocks and 40% bonds, and haven’t touched it since, would now have more than 80% in stocks, according to an illustration by Morningstar.

Holding 80% in equities would be too risky for most retirees, especially given stocks’ lofty valuations. The S&P 500 trades at a forward 12-month price/earnings ratio of 22.4, above the five-year average of 20 and the 10-year average of 18.7, according to FactSet.

The market’s weighting in giant tech stocks like Nvidia, Microsoft, and Alphabet is another concern. The top 10 stocks in the S&P 500, which is weighted by market cap, constitute nearly 40% of the index. Most are AI-related names.

Few pros would recommend exiting big tech stocks altogether. But if you have an outsize allocation, now is the time to trim. Within equities, Vanguard’s Khang recommends that retirees keep less than 50% in the S&P 500.

For the remainder, he suggests diversifying within the U.S. and international equity universes. That may include small- and mid-cap stocks, value stocks, and non-U.S. markets.

One simple way to diversify your U.S. stockholdings is with the Invesco S&P 500 Equal Weight exchange-traded fund, which holds every stock in the index in equal amounts. It doesn’t have the tailwind of megacap tech, but it’s faring well this year, up 10% versus 15% for the S&P 500.

Value stocks are another good diversifier, since the S&P 500 is tilted toward growth. The Dow Jones Industrial Average has a value tilt, Khang says, and many of its components pay a dividend.

The SPDR Dow Jones Industrial Average ETF Trust is one way to play it. While the fund still has tech names like Nvidia, it also owns value-oriented stocks like Verizon Communications and pays a 1.5% dividend.

Some fund managers are looking to diversify beyond AI. One way to do it: Look for companies that will benefit from AI spending regardless of whether the Magnificent Seven companies recoup their own massive investments. Think electricity and other infrastructure providers that are needed to build AI data centers, says Neil Hennessy, chief market strategist at Hennessy Funds.

“If you think pork will go up, you don’t buy the pig; you buy the feed manufacturer,” Hennessy said at an investment outlook event in November.

One stock Hennessy owns for his firm’s investors is Granite Construction. The company builds roads and sells construction materials such as asphalt. And it’s benefiting indirectly from AI, as companies need access roads to data centers. “There’s strong demand associated with data center infrastructure improvements and expansion and development,” CEO Kyle Larkin said on a recent earnings call.

Granite has a market cap of $4.7 billion and earnings growth projected at 30% in 2026 to $5.54 a share, according to consensus forecasts. Shares trade at 19 times earnings, a slight discount to the market.

Small- and mid-cap stocks have other benefits, says Paul Stanley, chief investment officer of Granite Bay Wealth Management in Portsmouth, N.H. Mid-caps have lagged behind the S&P 500 for years but offer more attractive valuations, he says. They also tend to be domestically oriented industrial and financial companies that don’t have as much exposure to tariffs and dollar risk. Small-caps should benefit from lower interest rates since they tend to borrow more. ETFs offering exposure include Dimensional U.S. Small Cap and iShares Russell Mid-Cap Growth.

Don’t neglect international stocks. After years of lagging behind U.S. stocks, international stocks are up nearly 30% this year. U.S. stocks make up about 65% of the world’s equity market cap, so some pros recommend that investors hold around 35% of their stock allocation outside this country. An ETF like iShares MSCI ACWI ex U.S. is an easy way to get access.

Bonds Are Back

Once your equity exposure is diversified, consider your overall mix of stocks and bonds. If your stock portion has ballooned beyond its target, sell some winners and buy bonds to get your allocation back on track.

The outlook for fixed income is solid, Khang says: It isn’t like 2020, when paltry bond yields meant there was no alternative to stocks—a phenomenon known by the acronym TINA. Nor is it like 2022, when rapidly rising interest rates caused bond prices to plunge (since the two move inversely).

Instead, bonds are back to normal valuations. Anders Persson, chief investment officer and head of global fixed income at Nuveen, expects 10-year Treasuries to stay in the 4% vicinity through the end of 2026. That’s a respectable coupon for retirees to clip. If the Federal Reserve continues to cut rates, there’s more possibility for total return, including price gains.

(Illustration by Jori Bolton)

The iShares Core U.S. Aggregate Bond ETF is a simple way to get exposure to the intermediate part of the yield curve that many pros find attractive right now. Alternatively, actively managed funds look for opportunities throughout the whole fixed-income landscape. Examples include Nuveen Strategic Income and Dodge & Cox Global Bond, the latter including international debt securities.

Municipal bonds remain attractive for investors in higher tax brackets, since the income they generate is generally exempt from federal and state taxes for residents of the state that issued the bond. The low-cost Vanguard Tax-Exempt Bond ETF is a solid choice; it yields 3.5%—or a taxable equivalent north of 5% for investors in the top three tax brackets.

Manage Your Taxes Wisely

If you are tweaking your portfolio, it’s usually most tax-efficient to make changes within a tax-deferred retirement account like a traditional 401(k) or individual retirement account, or IRA, since buying and selling within these accounts won’t generate taxable capital gains. Of course, if your goal is to realize losses to offset gains in a taxable account, confining your activity to tax-deferred accounts would be a minus.

Investors age 73 and over who are subject to required minimum distributions can use their RMDs as a rebalancing tool. Consider taking your RMD from an overweighted part of your portfolio. If you don’t need the money to live on, invest the proceeds in a taxable account in an asset class where you are underweight. If your cash cushion isn’t big enough, that’s another good place to plow your proceeds. Nearly one-third of RMDs at Fidelity are taken in November and December, according to a spokeswoman.

This year offers slim pickings for tax-loss harvesting. That’s the practice of selling losing positions to offset taxes on capital gains, which may be plentiful this year.

One way for retirees to avoid capital gains—and get a tax break—is by transferring appreciated stock to charity. A “donor advised fund” offers maximum flexibility: You can transfer appreciated shares to the fund and get an immediate tax deduction, then take your time deciding how and when to disperse the proceeds to charities.

Through 2025, taxpayers can typically get a tax deduction from charitable giving only if they itemize their deductions. Starting next year, taxpayers who take the standard deduction will receive an above-the-line charitable deduction of up to $1,000 for a single person and $2,000 for a married couple filing jointly. That gives taxpayers who take the standard deduction a reason to push their charitable giving into January of next year.

While you can time your charitable giving, you can’t time the market. That’s why it’s helpful to review your portfolio and rebalance on a fixed schedule, rather than in response to market gyrations. Because some of your moves may have tax implications, December is a good time to get it done.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com