Resources/Weekly Insights

Volume 14, Edition 29 | September 8 - September 14, 2025

A Good Problem To Have

Doug Walters, CFA

After a 25% climb in the S&P 500 since last summer, many investors are sitting on big unrealized gains. The temptation? Do nothing to avoid taxes. The smarter move? Stay disciplined. Avoiding taxes isn’t a strategy—your plan is.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

How fast a year passes. I went back to check the last time I wrote about capital gains management and couldn’t believe it was the spring of 2024. Since then, markets have been on a tear. The S&P 500 is up about 25% since our June 2024 article. Yes, there was a sharp pullback in April, but that now feels like ancient history.

Extended rallies create a new reality: losses are harder to find, embedded gains get larger, and realized gains go up. These are good problems to have—but they can also cause angst. For some investors, the natural reaction is to do nothing. After all, who wants to take gains and write a check to the IRS? But letting tax concerns dictate your investing decisions is shortsighted.

Why realizing gains matters

In most situations, regularly rebalancing and taking gains when necessary is simply good portfolio discipline. Our opportunistic rebalancing process is designed to systematically sell high and buy low. We give individual securities plenty of room to grow, so we’re not trimming unnecessarily. But when a position becomes too large, we don’t hesitate to act.

Why? Because maintaining an appropriate level of risk—and making room for our best ideas—is far more important than avoiding a tax bill.

Common misconceptions about capital gains

Many investors assume that deferring gains is always better. Here’s some food for thought:

Deferring gains today can create bigger tax issues later. Higher embedded gains mean higher taxable income when you eventually sell—often during retirement. That can increase your Adjusted Gross Income (AGI), which affects Social Security taxation, Medicare premiums, and even Medicaid eligibility.
Tax rates can change. Today’s long-term capital gains rates are 0%, 15%, or 20%, depending on income. While you might pay 20% today and 15% later, there’s another possibility—rates could go up. There have been multiple proposals to raise top rates to ordinary income levels, making it potentially advantageous to take gains now.
Portfolio risk creeps in. Avoiding gains often leads to: concentration risk, higher-than-intended equity exposure, and missed opportunities to invest in areas with better expected forward returns.

Action beats avoidance

Avoiding taxes is often less about strategy and more about emotion. Your financial plan should drive your decisions, not the IRS. Realizing gains when appropriate helps manage risk, maintain diversification, and keep your portfolio aligned with your goals.

2.9%

CPI Year-on-Year Inflation

Inflation ticked, up giving the Fed some food for thought ahead of next week’s FOMC meeting.

Headline of the Week

Inflation Edges Higher, Fed’s Tightrope Gets Tighter

After last week’s weak jobs report, markets were hoping for a benign inflation report. Thursday’s report delivered the last major data point before next week’s Fed meeting—and it didn’t make the central bank’s job any easier. The Consumer Price Index (CPI) rose 0.4% in August, doubling July’s pace, and pushed the year-over-year rate to 2.9%. Core CPI, which is better at capturing trends, climbed 0.3% for the month and held steady at 3.1% year-over-year.

Tariffs remain a key storyline, with higher costs slowly filtering through to goods. In fact, the pace of this “pass-through” is much slower than anticipated when the tariffs were announced. And the ultimate impact may not be known for several months or longer. The employment side of the mandate took another hit as jobless claims moved higher, challenging the notion that employers were holding the line on layoffs.

This employment/inflation tug-of-war is making a challenging job even more challenging for the Federal Reserve. Next week, the Fed is still expected to cut rates, but the size and extent of any cutting cycle are key questions that may not be answered as soon as many would like.

The Week Ahead

All attention will be on Jerome Powell this week as the chairman steps up to the microphone and announces the size of the rate cut. At least that is the expected script for Wednesday. Federal Reserve (Fed) is not the only bank on the spot as the Bank of England (BoE) and Bank of Japan (BoJ), amongst many others, have a rate meeting as well.

Federal express

The Fed, like the delivery company, is expected to deliver a rate cut.

The market is pricing in a 100% probability of a cut; the only question is of weather it is by a ¼ of a percent or ½ of a percent.
The market implied odds of a jumbo cut are around 10%, based on the interest rate futures markets.
The last time the central bank cut rates was in December of last year.
There will be a summary of economic projections and the dot-plots, which outline expectations for further action(s).
Investors are pricing at least another cut in 2025 after this one.

Not this time

Neither the BoE nor the BoJ are expected to move rates next week.

Both the United Kingdom and Japan are focused on inflation pressure concerns not the sluggish economies.
The BoE is worried about inflation running hot, while the Japanese counterpart is worried it is cooling, nevertheless, it is above the target for both countries.
The BoE is still expected to cut once this year; hence this meeting will be the gauge for when.
The BoJ is expected to hike rates at some point in 2025, so here also, this meeting is to figure out if October or December is the time.
Japan has political uncertainty as the race for Prime Minister will not be determined until October.
With the two front-runners holding opposing views on fiscal and monetary policy, the central bank may need to sit tight until politics is sorted out.
Coincidentally, both countries have inflation reports being released just prior to the meetings.

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