Our Rebalancing Policy and the 20% Drawdown Rule

Markets fall, sometimes sharply, and the question that matters is not whether that will happen again but what Queen City Wealth Planning does with your portfolio when it does. This page lays out our rebalancing policy in full: how often we review your allocation, what triggers an actual trade, what changes specifically once a decline reaches 20%, and — just as important — what we will ask you to do, and not do, while it is happening. It is meant to be the page you open when the market is falling and you want to know the plan, not improvise one.

When do you rebalance my portfolio?

Our policy is to review every client portfolio quarterly, checking each asset class against its target weight in your plan. A quarterly review does not mean a quarterly trade: we rebalance when an asset class has drifted more than 5 percentage points away from its target weight, not simply because a calendar quarter has ended. Between reviews, ordinary market movement is expected and is not, by itself, a reason to trade — a target allocation is a long-run anchor, not a line that has to be defended every week. Rebalancing on a drift band rather than a fixed calendar serves two purposes at once: it avoids unnecessary trading, and the tax costs and effort that come with it, during a quarter where nothing has moved enough to matter, while still catching a real drift promptly rather than letting it wait for a scheduled date that might be months away. The 5-percentage-point band applies at the asset-class level in your plan, not to every individual holding inside an asset class, so a single volatile position moving on its own does not necessarily trigger a portfolio-wide rebalance — though, as covered later in this article, a concentrated position in your own employer's stock is treated differently from an ordinary diversified holding.

What do you do in a 20% drawdown?

A decline of 20% or more triggers an out-of-cycle review regardless of where we are in the normal quarterly schedule — we do not wait for the next scheduled date once a drawdown of that size has happened. That review does several things at once: we rebalance into whatever has fallen the most, which in practice means directing new money and any available cash toward the asset classes that dropped, buying at a lower price than before the decline (your employer-stock position is the one holding this does not touch — it keeps to its own unwind schedule, described below, rather than being bought into because it fell); in taxable accounts, we look for tax-loss harvesting opportunities where a loss can be realized without triggering the wash-sale rule; we revisit your cash reserve to confirm it still covers what you are likely to need from the portfolio over the next 12 months, since a drawdown is exactly the wrong time to be forced to sell into a down market for spending needs; and we change the underlying financial plan only if your own facts have changed — a job loss, a change in your time horizon, a shift in how much risk you can actually tolerate — not simply because the market moved. The market falling is not, by itself, a reason to revise a plan that was built to withstand a decline like this one; if anything, a 20% drawdown is the scenario the plan was designed around, and running the playbook is how we confirm that design still holds rather than a signal that it needs to change.

Will rebalancing create a tax bill?

Where the trade happens determines whether it creates a tax bill: rebalancing inside a tax-deferred or tax-exempt account, such as a 401(k), an IRA, or a Roth IRA, has no immediate tax consequence at all, because those accounts are not taxed on gains until money comes out of them, or, for a Roth, not taxed on qualified withdrawals ever. That makes tax-advantaged accounts the first and easiest place to rebalance, and we lean on them for routine drift correction whenever your asset allocation allows it. In a taxable account, selling an appreciated position to rebalance can trigger a real capital gain, so we favor using new contributions and reinvested dividends to buy the underweight asset class first, only selling the overweight position directly when drift is large enough, or persistent enough, that waiting for new cash to catch up would take too long. When we do harvest a loss in a taxable account — most often during a drawdown, when losses are actually available to realize — the wash-sale rule limits what we can do with the proceeds: buying a substantially identical security within the window the rule covers, on either side of the sale, disallows the loss for current tax purposes, so we replace a sold position with something similar in exposure but not identical, rather than repurchasing the same holding right away.

What will you ask me to do in a downturn?

Our policy asks three things of you during a downturn, and all three are about restraint rather than action. First, no unscheduled selling on your own initiative — if a decline makes you want to move to cash, that is exactly the conversation to have with us before placing the trade, not after, since selling into a decline is one of the most reliable ways to convert a paper loss into a permanent one. Second, keep any regular contributions running rather than pausing them until things settle down — contributions made during a decline buy at the lower prices the decline created, which is the entire mechanical benefit of dollar-cost averaging, and pausing them removes that benefit at exactly the moment it is most valuable. Third, have one conversation with us before making any change to your plan, rather than acting first and telling us after — a single call can distinguish between a normal, expected market decline that the plan already accounts for and an actual change in your own circumstances that might genuinely call for a different plan. None of this asks you to feel calm about a 20% decline, only to route the decision through a conversation rather than a reflex, which is the entire reason a written policy like this one exists before the decline happens rather than being decided in the middle of one.

How does my company stock fit into rebalancing?

A concentrated position in your own employer's stock is not treated as one more diversified holding inside your regular rebalancing process — it follows its own unwind schedule instead, on the timeline covered in our article on concentrated employer stock and our 10% rule, rather than being bought or sold according to the drift bands described earlier in this page. There are two reasons we keep the two processes separate. First, an employer-stock position is usually being brought down toward a target, not held at a steady target weight the way a diversified asset class is, so rebalancing it the normal way — trimming when it grows, adding when it shrinks — would work against the goal of reducing it. Second, a 20% drawdown in the broader market and a 20% drawdown in one company's stock are not the same event: the market-wide drawdown triggers the out-of-cycle review described above, but a decline concentrated in your own employer's shares does not, by itself, change the unwind schedule, because that schedule already assumes the position is risky and is not waiting for a drawdown to start reducing it. In practice this means your equity-comp position and the rest of your portfolio can be moving through two different, deliberately separate processes at the same time — one steady and rules-based, the other actively working itself down — and that is by design, not an inconsistency.

Key numbers (2026)

• Rebalancing bands — an asset class triggers a rebalance once it drifts more than 5 percentage points from its target weight (our rebalancing policy).
• Review cadence — every portfolio is reviewed quarterly (our rebalancing policy).
• Drawdown trigger — a decline of 20% or more triggers an out-of-cycle review outside the normal quarterly schedule (our rebalancing policy).
• Cash-reserve horizon — a drawdown review confirms your cash reserve still covers the next 12 months of anticipated spending from the portfolio (our rebalancing policy).
• Wash-sale window — buying a substantially identical security within 30 days before or after a loss sale disallows the loss for current tax purposes (IRS Publication 550; IRC §1091).
• Capital loss deduction limit — up to $3,000 of net capital losses ($1,500 if married filing separately) can offset ordinary income in a single year, with any excess carried forward to future years (IRS Publication 550; IRC §1211(b)).

Current as of 2026-09

Sources

• IRS Publication 550, Investment Income and Expenses — https://www.irs.gov/publications/p550
• Internal Revenue Code §1091, Loss from wash sales of stock or securities — https://www.law.cornell.edu/uscode/text/26/1091
• Internal Revenue Code §1211, Limitation on capital losses — https://www.law.cornell.edu/uscode/text/26/1211

Sample content for demonstration purposes — not financial advice.