BSW recently concluded a portfolio rebalance following a more than 20% rise in the MSCI All Country World Index (ACWI) since our last rebalance in June 2025. In practical terms, this means we are trimming appreciated equity positions and reallocating capital back toward areas of the portfolio that have become relatively underweight, including fixed income and alternative strategies. (While client portfolio returns vary and are not necessarily represented by the ACWI, we use this index as the basis for our portfolio rebalance trigger.)
We consider rebalancing to be one of the simplest and most effective disciplines in long-term investing. It forces investors to systematically take gains from areas that have appreciated significantly and reallocate capital toward areas that may offer better forward-looking risk-adjusted opportunities. Just as importantly, rebalancing helps maintain the intended risk profile of a portfolio. Left unchecked, strong market rallies can gradually increase equity exposure and leave portfolios carrying more risk than originally intended.
This rebalance is notable given the backdrop against which it is occurring. Major equity indexes continue to reach new all-time highs despite a growing list of macroeconomic concerns that, historically, would seem more likely to restrain market performance than support it. Interest rates remain elevated and, following the recent inflation spike potentially linked to the conflict involving Iran and rising oil prices, markets have reduced expectations for near-term Federal Reserve rate cuts. Inflation, which had been moderating, has again become a concern. Meanwhile, the U.S. national debt has now surpassed 100% of GDP, adding further pressure to long-term interest rates and fiscal sustainability discussions.
And yet, markets continue climbing.
This disconnect between market performance and underlying economic uncertainty is unusual, but not unprecedented. Markets are forward-looking and often climb despite concerns that dominate headlines. Strong corporate earnings, resilient consumer spending, enthusiasm surrounding artificial intelligence, and continued capital flows into equities have all helped support markets in recent quarters.
In some ways, today’s environment feels conflicted. Economic growth is slowing but remains positive. Inflation is elevated but not spiraling. Interest rates are restrictive but not historically extreme. Consumers remain resilient even as affordability pressures rise. There are legitimate reasons for both optimism and caution, which is precisely why we believe diversified portfolio construction remains so important.
Successful investing is rarely about predicting the next geopolitical event, inflation report, or Federal Reserve decision. From our perspective, it is about building portfolios that may endure a wide range of environments and maintaining a repeatable process through both optimism and uncertainty. Rebalancing is an important part of that process.
Importantly, this rebalance should not be interpreted as a prediction that markets are about to decline. It reflects prudent portfolio management and our commitment to maintaining allocations consistent with each client’s long-term objectives and risk tolerance.
Periods of strong market performance can sometimes tempt investors to abandon discipline and chase momentum. Conversely, periods of uncertainty can encourage excessive caution. Our goal is to avoid both extremes. We continue to focus on thoughtful diversification, prudent risk management, and maintaining portfolios designed not just for the market environment we hope for, but also for the one we may encounter next.
We appreciate the trust our clients place in us and remain committed to navigating these environments with discipline, perspective, and care.
