16 Aug Should I cut back on health care mutual funds?

Q. I have been invested in health care mutual funds, and they have done well. But now they are 25% of my portfolio, when they used to be 10%. Should I ride the wave, or should I pare back even though it’s doing well? It seems so much is changing in the news and I have a hard time keeping up. I know. I maybe need a financial planner, but I have done well on my own so far.
— Investor

A. We’re glad to hear you’re monitoring your portfolio.

A winning investment is a good problem to have.

But as you noted, when one holding grows too much, it quietly changes how much risk you’re carrying, whether you meant to or not.

The question isn’t really “is health care good or bad?” It’s “how much of my money should be riding on any single bet?”

You likely didn’t choose to put 25% into health care, said Jeanne Kane, a certified financial planner with OneDigital in Boonton.

The market did it for you as those funds outgrew your other investments, she said.

“Planners call this `allocation drift,’ — your mix slowly moves away from your original plan without you making a single trade,” Kane said.

“Your allocation is like driving down a two-lane road with a double yellow line to your left separating you from approaching cars and a white line marking the edge of the road on your right,” she said. “You want to stay in your lane.”

A position that’s now 25% of your portfolio carries more than double the weight it did at 10%, so a downturn in health care would sting far more than it used to, she said.

The bottom line? You’re now taking on more concentration — and more risk — than you originally signed up for.

It sounds like it’s time to rebalance, she said.

“Rebalancing simply means trimming what’s grown oversized and steering the money back toward your target mix,” she said. “It’s a built-in way to do what everyone’s told to do but can be hard to emotionally do: sell high and buy what’s temporarily out of favor.”

A common rule of thumb is to review any time a holding drifts more than about 5% away from its target, she said. Going from 10% to 25% is past that trigger.

“It’s about controlling risk, not predicting that health care is about to fall,” she said.

You do have options, she said, but there are tradeoffs.

If you keep your allocation at 25%, you’d have the highest growth potential, but also the highest concentration risk, she said.

You could trim back your holdings part way, such as pare from 25% back toward, say, 15%. You take some profit off the table while remaining invested in a sector you believe in, she said.

Or you could rebalance fully and return to your original 10% target, and redirect the rest across your other holdings.

There are a couple of things to consider before you sell anything, though, Kane said.

First, consider taxes.

In a taxable brokerage account, selling appreciated shares can trigger capital gains tax, she said.

“A capital gain is the difference between what you paid for the fund and what you sell it for,” she said. .

Short-term capital gains would be for investments held for one year or less. These are taxed at your ordinary income tax rate, she said.

Then long-term capital gains would apply for an investment that’s held for at least one year and a day. These gains are taxed at preferred long term capital gains rates (0%,15% or 20%) which are based on your income and will likely be lower than your ordinary income tax rate, she said.

Spreading sales across more than one tax year can also soften the hit, she said.

Kane noted that rebalancing inside an IRA or 401(k) creates no tax bill. If you hold the investment in multiple account types, look to your retirement accounts first, she said.

Also, she said, don’t let headlines drive the bus.

“A good rebalancing plan is designed so you don’t have to track the daily news,” she said. “You set a target, check it on a schedule — e.g. once or twice a year — or when it drifts too far, and adjust — taking the emotion out of it.

On the question of a financial planner, Kane said they can provide a second set of eyes on the exact things you flagged: the tax angle, choosing the right target for your age and goals, and having a written plan so the news cycle doesn’t rattle you.

She noted that certified financial planners can provide more than just investment advice and help you build a holistic financial plan that takes into account the five pillars of financial planning – protection (risk management/insurance), retirement planning, investments, tax planning, and estate planning.

“Just as you go to your doctor for your physical health, a financial advisor or a CFP can help you with your financial health,” she said. “Many individuals and families who felt comfortable managing their own investments early on may feel the need for help as their investments get bigger and/or their needs are more complicated.”

“You may also be at a point in your life where you’d prefer to have a professional step in to help,” she said.

Email your questions to .

This story was originally published in August 2026. 

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.