Year-End Rebalancing For Physicians: How To Check Your Risk, Cut Taxes, And Prep For 2026

The last quarter of the year is a natural checkpoint for your financial plan.

Markets move, interest rates change, goals evolve, and so on. If you haven’t reviewed your portfolio lately, there is a good chance your mix of stocks, bonds, and cash has fluctuated. That drift can quietly raise or lower your risk without you even noticing. A thoughtful year-end rebalance brings your allocation back in line and can improve tax efficiency heading into 2026.

This guide from YPP gives physicians and doctors a simple, step-by-step playbook to spot portfolio drift, make tax-smart rebalancing moves, and move into 2026 aligned with your unique goals:

What “Allocation Drift” Looks Like in Real Life

Before you change anything, it helps to know what “drift” is.

When parts of your portfolio grow at different speeds, your mix quietly slides away from the plan you set, often without adding a single dollar. Having more stocks than intended usually means more risk, while fewer stocks can slow growth.

Year-end is a good time to check where you are vs. where you meant to be.

→ Your stock piece got bigger without you noticing. You set 60% stocks / 40% bonds in January. After a strong year, you’re at 68% / 32%. That extra 8% in stocks means bigger ups and bigger downs.

→ Your risk changed even if your returns look good. Gains can hide rising volatility. Rebalancing brings risk back to your comfort zone and timeline.

YPP Quick test: If any major bucket (U.S. stocks, international stocks, bonds, cash, or alternatives) is 5-10 percentage points off your target, it’s probably time to rebalance.

A Doctor-Focused Checklist Before You Rebalance

Before you make trades, pause and line up the basics. A pre-check helps you rebalance with purpose, control taxes, and keep your risk where it belongs for your stage of practice and life.

Doctor-focused checklist before you rebalance

1. Confirm goals and timelines: Are you 2-5 years from partial retirement, moving from fellowship to attending, or planning a home purchase? If yes, consider dialing back volatility and boosting near-term safety.

   
   

2. Update cash needs: Map the next 6-24 months of big expenses (down payment, board fees, childcare, taxes). Fund these from cash and short-term bonds, not equities.

   
   

3. List every account by tax “bucket”

   • Tax-deferred: 401(k) / 403(b) / 457(b)

   • Tax-free: Roth IRA, backdoor Roth, mega-backdoor Roth (if your plan allows)

   • Taxable brokerage: individual or joint

     
     

4. Set targets by account (asset location): Place less tax-efficient assets (e.g., actively managed bonds, REIT funds) in tax-advantaged accounts when possible. Keep broad stock index funds/ETFs in a taxable account for better tax efficiency over time.

   
   

5. Note contributions and cash flows: Upcoming bonuses, RSU vests, or call pay can be aimed at underweight areas, so you rebalance with new money instead of selling.

   
   

6. Decide your “drift bands” and cadence: Choose 5-10 percentage-point bands around each sleeve and a check cadence (quarterly review, with a year-end action).

   
   

7. Document the plan: Write a one-page summary of targets, bands, and which accounts you’ll adjust first. It keeps decisions consistent when markets are noisy.

   
   

How to Rebalance Without Creating an Avoidable Tax Bill

Year-end is a great time to pair risk control with tax work. In taxable accounts, be intentional to avoid realizing gains you don’t need. Use these levers – in order:

1. Start with new money. Point fresh contributions, bonuses, or reinvested dividends toward the parts of your portfolio that are light. No selling needed.

   
   

2. Fix the big stuff inside your 401(k)/403(b)/IRA. You can rebalance “behind the tax wall” without creating capital gains.

   
   

3. Use losses to your advantage in taxes. If some shares are worth less than what you paid, you can sell them to offset gains elsewhere. Just avoid buying the same (or nearly the same) investment for 30 days before or after to steer clear of the wash-sale rule.

   
   

4. Put the right assets in the right accounts. Broad stock index funds/ETFs often fit well in taxable accounts. Less tax-friendly holdings (like actively managed bond funds or REIT funds) usually belong in IRAs/401(k)s.

   
   

5. Giving this year? Consider donating shares. Appreciated stock or fund shares can be better than cash. You may avoid capital gains and still get a charitable deduction.

   
   

6. Be calendar-smart. If you need to realize gains, try to pair them with harvested losses and keep an eye on your expected income so you don’t drift into a higher tax bracket or trigger the NIIT.

   
   

Done right, rebalancing both manages risk and improves long-term tax efficiency.

Practical “Drift Bands” and Rules You Can Use

→ Pick simple “drift bands.” Give each target a wiggle room of about ±5%. Example: if your plan is 60% stocks / 40% bonds, rebalance if stocks move above 65% or below 55%.

→ Use a steady check-in. Glance quarterly. Take a formal action each December if anything is outside your band. If you’re still in range, do nothing.

→ Keep it to as few trades as possible. Fix what you can inside your 401(k)/403(b)/IRA first. Only touch the taxable account if you still need to nudge things back.

Physician-Specific Opportunities at Year-End

If you’re a busy doctor, year-end is prime time to tighten up your financial plan: you’ve got unique benefits, multiple accounts, and irregular income (call pay, bonuses) that can do extra work for you with a little planning.

Here’s how to make the most of it – simply and tax-smart.

→ Max your workplace plans (earlier is better). If your hospital allows after-tax 401(k) contributions with an in-plan Roth conversion, finish the mega-backdoor Roth steps before deadlines.

→ Use both plans if you have them. Many doctors have a 403(b) and a governmental 457(b). Their contribution limits are separate, so you can save more and create more room to rebalance inside tax-sheltered accounts.

→ Put extra income to work. Map RSU vesting and call pay to your tax plan. Aim those dollars at the parts of your portfolio that are underweight so you can rebalance with new money instead of selling winners.

→ Top off 529s and HSAs. Contribute before December 31 if your state or employer offers benefits, then choose investments that match your timing: shorter-term for near medical costs or upcoming tuition, longer-term for later goals.

→ Give shares, not cash. If you’re charitably inclined, consider a donor-advised fund. Donating appreciated shares can avoid capital gains and secure a deduction, and then you can rebalance the rest of your portfolio afterward.

The Execution Playbook (Simple + Doctor-Friendly)

1. Take inventory. List every account you have (401(k)/403(b)/457(b), IRAs, taxable), your current mix, and your target mix.

   
   

2. Diagnose the drift. Highlight any bucket that’s outside your band (e.g., more than ±5% from target).

   
   

3. Pick the right venue first. Fix as much as you can inside your 401(k)/403(b)/IRA – those trades don’t create capital gains.

   
   

4. Tidy up taxable next. Start with new contributions, then consider tax-loss harvesting. If you still need to nudge, make selective, minimal sales.

   
   

5. Write it down. Save a one-page note: what you changed, where, and why. It keeps you consistent next time.

   
   

6. Automate the follow-through. Update auto-contributions and fund choices so your portfolio stays near target all year without constant tinkering.

   
   

Common Mistakes to Avoid

→ Chasing winners. Letting winners run forever can leave you with more risk than you signed up for. Rebalance to your plan.

→ Over-trading in taxable. Multiple small sales can create a messy 1099 and higher taxes. Consolidate actions.

→ Ignoring life changes. New goals can justify a new target mix even if you are within bands. October 2025 Content

→ Wash-sale stumbles. If you harvest losses, use a not-substantially-identical alternate for 31+ days.

FAQs on Financial Planning for Doctors and Rebalancing

How Often Should I Rebalance?

Check quarterly, act at least once a year, or any time a sleeve breaks your ±5–10% drift band. The goal is risk control – keeping your mix aligned with your plan and timeline – not chasing the last bit of return.

YPP Quick example: You target 60% stocks / 40% bonds. If stocks creep to 67%, that’s outside a 5% band – rebalance.

Will Rebalancing Hurt Returns?

It can feel odd to trim what’s doing well. 

Sometimes you’ll sell recent winners and add to laggards. That’s by design. Rebalancing keeps your downside risk from quietly growing and helps you avoid a big, surprise drawdown right before a major goal (partial retirement, home purchase, wedding planning, kid in college).

YPP Doctor reality: If you’re 2-5 years from cutting back clinical hours, risk control usually matters more than squeezing out a few extra basis points.

What if All My Accounts Are Taxable?

You can still be tax-smart:

→ Use new cash first (bonuses, RSUs, call pay) to add to underweight areas.

→ Tax-loss harvest when positions are below cost to offset gains elsewhere (mind the wash-sale rule).

→ Make partial, selective sales to reduce realized gains – start with lots that have lower gains or long-term status.

→ Donate appreciated shares if you’re charitably inclined; you may avoid capital gains and still get a deduction.

Should I Rebalance During Market Turmoil or Wait?

Have a rule and follow it. If your drift band is breached, rebalance rather than trying to time the bottom or top. Consistency beats gut feelings.

YPP Tip: Use a single trade ticket approach – fix as much as possible in tax-advantaged accounts first, then make minimal moves in taxable only if needed.

Ready for a Physician-Focused Checkup?

Year-end rebalancing is simple but powerful.

It resets risk to your comfort zone, aligns your portfolio with your current goals, and, with the right steps, can enhance tax outcomes going into 2026. If you would like a second set of eyes on your mix, our expert team can run a quick drift analysis, map tax-smart fixes, and tailor a physician-specific playbook for the year ahead.

Talk to a YPP advisor here →