As investors reexamine their portfolios in the new year, here’s what to consider.
Head of Private Wealth Investments,
Wealth & Investment Management
We’ve made it through a season of uncertainties and change, and as we settle into the new year, it’s time to orient ourselves to the new market landscape.
Like most investors, high-net-worth investors want to establish portfolios that meet their growth and income goals. But these investors are often unique not only because of their complex needs but also because they often have access to a broader mix of asset classes.
As they reexamine their portfolios in 2025, I’d encourage them to focus their attention on three key strategies: Lean into U.S. investments and stocks, consider tax-loss harvesting strategies, and plan to diversify with alternative investments.
Lean into the U.S.
The general consensus among analysts is that they’re feeling good about the U.S. economy in the new year and see it as stronger than other developed markets. Analysts expect to see the S&P 500 Index, which is often used to measure the performance of U.S. equities, rise in 2025. Stock earnings are likely to grow while interest rates lower.
Those conditions suggest that high-net-worth investors should consider leaning into U.S. markets, placing an emphasis on U.S. stocks.
When it comes to fixed income, current guidance favors high quality U.S. bonds with maturity of 4 to 10 years.
With all this anticipated growth comes the likelihood of capital gains, so it’s important to keep an eye on tax implications.
Consider tax-loss harvesting strategies
Tax efficiencies can play a huge role in designing effective financial strategies for high-net-worth investors.
The expected upward movement of the S&P 500 Index is welcome news, but that rise may not be as beneficial to those paying an inordinate amount of taxes. That’s where tax-loss harvesting, as well as transition management to help rotate to new strategies while striving to minimize the changes’ tax impacts, come in. Tax-loss harvesting, a strategy of selling securities at a loss to offset taxable gains on other securities, is one way of helping minimize tax impacts. Work with a tax professional and your advisor to help identify tax-loss harvesting opportunities and to help prevent you from running afoul of IRS rules that prohibit investors from repurchasing the same assets that have been recently sold at a loss and claiming the loss on that year’s return.
When it comes to investments, pay close attention to the realized returns after taxes, fees, and inflation. Those three factors combined can help you determine whether that investment is right for your portfolio. While inflation declined in 2024, it could rise again in the latter half of 2025, which means investors should reevaluate strategies as the year progresses.
Look for diversifiers
High-net-worth investors are increasingly deviating from the traditional 60/40 portfolio — 60% in equities and 40% in fixed income — as they turn to alternatives in search of diversification, higher returns, and protection against inflation. Alternatives fall outside the traditional asset classes of stocks and bonds, and they allow for different kinds of strategies and structures than conventional investments. If you have concentrated positions or have not explored alternative investments, this is a great time to connect with your advisor to discuss your options.
Many high-net-worth investors, particularly business owners and executives, have significant concentrations in a single company or industry. Those concentrations may grow over time if they don’t have a hedging or diversification strategy in place. Investors may need to look past sentimental attachment to certain stocks in order to create balanced portfolios.
The opportunities available in alternative investments are where high-net-worth investors can find off-the-beaten-path diversifiers. In the U.S., only a small percentage of companies are publicly traded, leaving vast opportunities for wealthy investors to explore private capital investments, which offer the potential to invest in fast-growing or restructured private companies, and hedged strategies. Your advisor can help you understand alternative investments, such as strategies that can include private debt and private equity, diversifying away from traditional markets.
Risk disclosures:
Wells Fargo Wealth & Investment Management (WIM) provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.
Alternative investments, such as hedge funds, funds of hedge funds, managed futures, private capital, real assets and real estate funds, are not appropriate for all investors. They are speculative, highly illiquid, and are designed for long-term investment, and not as trading vehicle. These funds carry specific investor qualifications which can include high income and net-worth requirements as well as relatively high investment minimums. The high expenses associated with alternative investments must be offset by trading profits and other income which may not be realized. Unlike mutual funds, alternative investments are not subject to some of the regulations designed to protect investors and are not required to provide the same level of disclosure as would be received from a mutual fund. They trade in diverse complex strategies that are affected in different ways and at different times by changing market conditions. Strategies may, at times, be out of market favor for considerable periods with adverse consequences for the fund and the investor. An investment in these funds involve the risks inherent in an investment in securities and can include losses associated with speculative investment practices, including hedging and leveraging through derivatives, such as futures, options, swaps, short selling, investments in non-U.S. securities, “junk” bonds and illiquid investments. The use of leverage in a portfolio varies by strategy. Leverage can significantly increase return potential but create greater risk of loss. At times, a fund may be unable to sell certain of its illiquid investments without a substantial drop in price, if at all. Other risks can include those associated with potential lack of diversification, restrictions on transferring interests, no available secondary market, complex tax structures, delays in tax reporting, valuation of securities and pricing. An investment in a fund of funds carries additional risks including asset-based fees and expenses at the fund level and indirect fees, expenses and asset-based compensation of investment funds in which these funds invest. An investor should review the private placement memorandum, subscription agreement and other related offering materials for complete information regarding terms, including all applicable fees, as well as the specific risks associated with a fund before investing.
