Resources/Weekly Insights

Volume 15, Edition 5 | February 9 - February 15, 2026

Strong markets. Good problems.

Doug Walters, CFA

Avoiding taxes feels safe, but it can quietly increase portfolio risk. Here’s how unrealized gains lead to risk drift—and why managing risk matters more than avoiding a tax bill.

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

Over the past year, many investors have seen meaningful returns. With those price increases comes a familiar question: should we realize gains if it means paying taxes? We’ve written about this before, and the core message hasn’t changed: avoiding taxes should not override good portfolio discipline. But the message is particularly pertinent now.

Why now?

It is still early in a new year, and capital gains budgets have been reset. But there’s more. In case you missed it, many equities around the world are at or near all-time high prices, as are precious metals like gold. With this backdrop, now is an excellent time to ensure your portfolio risk profile is where it should be.

Inaction is an active risk decision

Portfolio risks come in many forms. Last week we discussed the concept of “permanent loss of capital.” That is, perhaps, the most important risk, and today we’ll add to the focus more traditional measures, like volatility and drawdown. Risk is driven in large part by what percentage of a portfolio is in each asset. More equities and fewer short-term Treasuries = more risk, and vice versa. Simple.

Yet those percentages don’t stay put on their own.

When risky stocks outperform bonds, stocks become a larger part of the portfolio. No trades are required. Just time. By “doing nothing,” your portfolio risk can quietly morph.

How unrealized gains lead to risk drift

There’s an easy fix to this: opportunistic rebalancing. It’s a proven method of good risk hygiene (not to mention a way to systematically sell high and buy low). One potential roadblock to regular rebalancing is a capital gains limit. That is when an investor decides to place an upper limit on the gains they are willing to realize each year to limit their capital gains tax bill. In some circumstances this can make sense, but when gains aren’t realized, three things tend to happen:

Winners take up more space: The assets that have already done well become a bigger part of the portfolio.
Target allocations fade into the background: On paper, the portfolio may still be labeled “balanced,” but in practice it’s taking more risk than originally intended.
Volatility silently creeps higher: The portfolio becomes more sensitive to market moves, even though no conscious decision was made to increase risk.

This is what we mean by risk drift. It builds slowly in good markets and usually only becomes obvious when markets turn. And at some point, they will turn.

Why this is easy to miss

Taxes are immediate and visible, while risk drift is neither. It’s human nature to focus on the known cost today (a tax bill) and discount the less obvious risk tomorrow (a larger drawdown or even worse… permanent loss of capital). While taxes can easily be capped by policy, losses aren’t capped.

Managing a portfolio means weighing both

Rebalancing isn’t about timing markets or calling tops. It’s about keeping the portfolio aligned with the level of risk the plan was built around in the first place. Sometimes, realizing gains is simply the cost of staying diversified, avoiding concentration, and keeping risk where it belongs.

At Strategic, our goal isn’t to eliminate or even minimize taxes. That would be easy. Instead, we hold your long-term dreams and goals dear and seek ways to improve those outcomes after considering taxes. Nobody likes paying taxes, but it’s a no brainer to pay more today if it means better future results.

Pulling it all together

Unrealized gains can feel harmless, even smart, in strong markets. But over time, they reshape portfolios in ways that are easy to overlook and hard to unwind. Taxes matter, but risk can compound quietly, often showing up at exactly the wrong moment.

130,000

Jobs created in January according to the non-farm payrolls report. The better-than-expected figure should be viewed with a little caution as we discuss below. It’s also worth noting this is a notoriously volatile data series.

Headline of the Week

Cooling Prices, Softer Jobs, and a Market Searching for Direction

This week’s delayed January reports offered a clearer signal on inflation and a more complicated one on employment. The Consumer Price Index showed further easing, with both headline and core measures drifting lower. Shelter costs—long a sticking point—continued to cool, and energy prices provided an additional pull downward. Even with lingering household pressures in areas like food and utilities, the broader trend points toward gradual disinflation rather than renewed acceleration. Although, services inflation remains the wild card.

The labor picture, however, came with more nuance. The headline payroll number looked encouraging at first glance, but most of the gains were concentrated in health care and social assistance. Annual benchmark revisions also recast much of last year’s job growth in a weaker light. Taken together, the data sketches a labor market that is not unraveling but is clearly losing some momentum beneath the surface.

For the Federal Reserve, the combination reinforces the slow‑and‑steady posture seen in recent months and seem unlikely to result in any rate cuts – for now. The easing gives policymakers more breathing room, even as the employment landscape raises questions about underlying economic strength.

As has so often been the case, these crosscurrents stop short of offering a definitive narrative. Instead, they underscore a familiar theme from recent months: progress on inflation paired with a labor market that is sturdy yet fragile around the edges. For now, that mixed backdrop remains the center of gravity for the economic conversation.

The Week Ahead

This week, we have two notable economic release stateside, the earnings calendar is a little light, and most of Asia is on holiday for the Lunar New Year.

Three or more!

The fourth quarter Gross Domestic Product (GDP) will be unveiled late next week.

This is the first estimate of growth of the U.S. economy; there will be revisions.
Expected growth is 3% for the quarter, which would be a drop from 4.4% in the 3rd quarter.
However, GDPNow from the Atlanta Federal Reserve Bank has been flashing 3.7%, giving traders hope that the economy was even stronger than those consensus expectations.

Wait a minute

The minutes of the Federal Reserve’s last rate setting minutes will be published on Wednesday!

A notable hawkish tilt was evident in the last meeting, with the usual suspects (now two) advocating for more cuts.
What to keep an eye on in the minutes is any hint that the central bankers are ready to move on from hyper focus on inflation to start worrying about the other side of their mandate, jobs!
Speaking of inflation…

The price is right!

The Personal Consumption Expenditures Index (PCE) report will be reporting on inflation in December, so yes, a little dated.

The last report for November was a 2.8% year-over-year increase in core-PCE, which excludes the volatile food and energy segments; that is a slight bump from the previous month.
That tiny increase in November from 2.7% has been what inflation hawks have hung on to, so a decline in December may help ease inflation anxiety.
The PCE variety of inflation is the preferred gauge for the central bank.

Wall-to-Wall

Earnings reports simmer down in the short week, with only two major names on the calendar: John Deere and Wal-Mart.

Wal-Mart joined the exclusive $1 Trillion market capitalization club just this past month.
Staying in that club will require the world’s biggest retailer to meet or beat the expected 9.9% earnings growth Wall Street is expecting for the 4th quarter and guiding to match or top the 11.35% they expect in the upcoming quarter.

Take a break

President’s day on Monday will shorten the market to a four-day week.130

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on total client assets of over $2.5 billion.

Overview

Disclosures

Strategic Financial Services, Inc. is registered with the Securities and Exchange Commission (SEC) as an Investment Advisor. The term “registered” signifies compliance with regulatory requirements and does not imply a certain level of skill or training.

The information provided on our website, including weekly market commentaries, financial planning articles, and other educational resources, is intended solely for educational purposes. It is designed to offer insights into financial planning and investment management, aiming to enhance understanding of financial concepts, strategies, and market trends. This content should not be interpreted as personalized investment advice or a recommendation for any specific strategy, financial planning approach, or investment product. Financial decisions are deeply personal and should be made considering the individual’s specific circumstances, goals, and risk tolerance. We recommend consulting with a professional financial advisor for personalized advice.

Please be aware that Strategic Financial Services, Inc. does not provide legal or tax advice. The content on this website is not intended to be used as such or as a substitute for legal or tax advice from a licensed professional. We advise seeking guidance from qualified legal and tax advisors regarding these matters.
Investment Risks and Portfolio Management.

The discussion of any investments on this website is for illustrative purposes only and provides no guarantee that the advisor will make any investments with the same or similar characteristics as those presented. The investments identified and described herein do not represent all the investments purchased or sold for client accounts. The selection of representative investments to discuss is based on various factors, including recent company news or earnings releases.

It should not be assumed that any investments discussed were or will be profitable. All investments involve risk, including the potential loss of principal. There is no assurance that investments mentioned will remain in client accounts at the time you view this information.

When index returns are mentioned on this site, they are provided as a general indicator of market conditions and are not representative of any client’s portfolio performance. Indices are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested in directly. Therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

While index returns are used as a framework to report on general market conditions, they should not be construed as an indicator of future performance of any specific investment or portfolio. Discussion of index returns is intended to provide context and insight, not to suggest that clients will achieve similar results. Each client’s portfolio is managed according to their specific investment goals and financial situation.

The opinions and any forward-looking statements expressed in the articles and videos featured in our resource center are as of the date of publication. These statements are based on current laws, regulations, market conditions, and other relevant factors, including third-party data. Given the dynamic nature of financial and regulatory environments, as well as potential changes in market conditions or economic circumstances, the information provided may become outdated or may no longer be accurate.
We rely on third-party data to form our opinions and projections, which means that these are subject to the same uncertainties that affect all data-dependent analyses. As such, we advise readers to exercise caution and not rely solely on the statements made herein for making financial decisions. It is recommended that investors consult with a professional advisor who can help assess the relevance and accuracy of the content in light of the current economic climate and personal financial situation.

Our website contains links to third-party websites as a convenience to our users. Strategic Financial Services, Inc. does not control, endorse, or guarantee the content found on such sites. We are not responsible for the accuracy, legality, or content of the external site or for that of subsequent links.
Contact the external site for answers to questions regarding its content.
The inclusion of any link does not imply our endorsement of the site, nor does it imply any association with its operators. Use of any such linked website is at the user’s own risk.