A year-end portfolio review checklist usually includes the basics: rebalancing allocations, harvesting tax losses, and checking whether your investments still align with your goals. Those are pretty typical steps.
Nothing groundbreaking there.
What often gets missed are the quieter risks that accumulate over the course of the year. These issues don’t necessarily show up in performance numbers, and they rarely trigger alarms for investors. Yet they can meaningfully increase downside risk, reduce flexibility, or create unpleasant tax surprises later on.
As part of a more complete end-of-year portfolio review, here are three under-the-radar items investors should add to their checklist before the calendar turns.
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3 Under-the-Radar Risks to Check at Year’s End
1. Overlapping Stock Exposure Hidden Inside ETFs
One of the most overlooked items on a year-end portfolio review checklist is hidden concentration risk created by ETF overlap.
ETFs are commonly used to increase diversification, but diversification at the fund level does not guarantee diversification across your entire portfolio. Many investors own multiple ETFs that appear different on the surface (such as total market funds, growth funds, sector ETFs, and thematic strategies) but hold many of the same underlying stocks.
This overlap tends to intensify during strong market years. As the largest companies outperform (Magnificent 7 stocks, we’re looking at you), they naturally grow into larger positions within index-based funds. If you’ve added new ETFs without trimming existing ones, you may unknowingly be doubling or tripling exposure to the same names.
Why this belongs on your year-end checklist:
- Portfolio risk may hinge on a small number of companies.
- Multiple funds can decline simultaneously from a single event (say, an adverse market reaction to the AI trade).
What to check before year-end:
- Aggregate your holdings by individual stock, not just by fund.
- Identify the top 10 underlying positions across all ETFs combined.
- Decide whether any large exposure is intentional or accidental.
Some overlap is to be expected. What you’re checking for here is inadvertent overexposure to individual stocks or themes.
As an example, the S&P 500 ETF (SPY) has 7.4% of its holdings in Nvidia (NVDA) and 7.1% of its holdings in Apple (AAPL).
At the same time, the Vanguard Growth Index ETF (VUG) has 12.5% of its holdings in NVDA and 10.7% in AAPL.
If those two ETFs make up your stock holdings, you effectively have 10% of your stock investments allocated to NVDA and 8.9% to AAPL.
2. Factor Exposure Drift Over the Course of the Year
Another often-missed item in an end-of-year portfolio review is factor drift—changes in your portfolio’s risk characteristics that occur without any action on your part.
Many investors intentionally seek exposure to factors like value, momentum, quality, or low volatility. Others inherit factor exposure indirectly through ETF selection. Over time, market movements can change what those funds actually represent.
A value fund can become less value-oriented after a strong rally. A low-volatility fund may take on more cyclical risk as sector weights shift. A high-quality strategy might become heavily concentrated in one industry that happens to score well on its metrics.
Because the fund name doesn’t change, investors often assume the exposure hasn’t changed either.
Why this matters in a year-end portfolio review:
- Your portfolio may behave very differently in a downturn than expected.
- Popular factors can unwind quickly when sentiment shifts.
- You may unknowingly stack the same factor across multiple holdings.
What to review before year-end:
- Compare current factor metrics to prior years.
- Check your understanding of the behavior of the fund against the fund’s actual performance and composition
Your funds’ summaries are a good place to start here, as they’ll lay out the criteria that the fund uses for rebalancing.
For instance, the following (bolding is mine for emphasis) comes from the summary of the aforementioned Vanguard Growth ETF (VUG):
“With respect to 75% of its total assets, the fund may not: (1) purchase more than 10% of the outstanding voting securities of any one issuer or (2) purchase securities of any issuer if, as a result, more than 5% of the fund’s total assets would be invested in that issuer’s securities; except as may be necessary to approximate the composition of its target index. This limitation does not apply to obligations of the U.S. government or its agencies or instrumentalities.”
The top two holdings in VUG are NVDA and AAPL, as mentioned above, and both represent more than 10% of the fund’s total assets.
If you relied on the first bolded section to keep you diversified, the second bolded section threw you a curveball.
3. Tax Risk Created by Successful Investments
Taxes are a standard part of any year-end portfolio review checklist—but most investors focus almost exclusively on harvesting losses. Ironically, some of the biggest risks come from positions that have performed very well.
Large unrealized gains can quietly reduce your flexibility. Investors often delay rebalancing or selling positions because the tax cost feels too painful, even when the investment no longer fits their risk profile.
In addition, strong-performing funds—especially mutual funds and certain ETFs—may distribute capital gains late in the year. These distributions can trigger tax bills even for investors who recently bought the fund.
Why this deserves a checklist spot:
- Gains from outperforming positions can lock in unintended concentration risk.
- Tax-related hesitation can prevent necessary portfolio adjustments.
- Surprise capital gains distributions can disrupt cash-flow and tax planning.
What to check before year-end:
- Take a hard look at your best-performing positions and funds and check for concentration risk.
- For funds, review the prior year’s capital gains distributions (distributions won’t be identical, but overall market performance was very similar, and these could give you a sense of what to expect this year).
- Consider holding off on new fund (especially mutual fund) purchases until after they’ve made their year-end distributions.
“Cut your losers short and let your winners run,” is good advice in investing, but don’t let your winners run so far that you’re betting the house on one or two horses.
A Smarter Year-End Portfolio Review Checklist
A thorough year-end portfolio review checklist should have you looking for risks that quietly build during good markets and only become obvious when conditions change.
Hidden ETF overlap, unnoticed factor drift, and tax exposure from successful investments are a consequence of inaction (even well-meaning inaction), not poor decisions. Adding these items to your end-of-year review won’t guarantee better returns, but it can meaningfully reduce avoidable surprises.
Before the calendar resets, make sure your portfolio reflects deliberate choices—not accumulated side effects from the past year.
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