Hedge Against Tech Volatility – Best Portfolio Rebalancing Tool to Reduce Risk in 2025
In 2025, managing your portfolio effectively requires a strategic approach to asset allocation. For investors and RIAs looking to reduce concentrated risk, securities-based lending is an effective portfolio rebalancing tool that offers a way to rebalance without immediately selling assets. Whether using a portfolio rebalancing tool or software to automate adjustments or strategic lending solutions, this approach allows for a more customizable reallocation toward a target allocation while considering risk tolerance, tax savings, and market opportunities. By leveraging eligible listed securities in brokerage accounts, clients can access liquidity in real-time to optimize portfolio management without disrupting long-term strategies.
Introduction: The Tech Boom and Its Risks
For high-net-worth individuals (HNWIs) and institutions, tech’s meteoric rise brought high valuations—but also risk. Recent market corrections prove that even top stocks aren’t immune. This “tech wave” has likely fuelled impressive portfolio returns. However, this success has also created a significant, and potentially dangerous, concentration risk. As of early 2025, technology makes up a substantial portion of the S&P 500, a level of dominance requiring careful consideration by any investor. Is it time to use SBL as a portfolio rebalancing tool?
Understanding Securities-Based Lending (SBL)
Securities-based lending (SBL) as a portfolio rebalancing tool, allows investors to leverage their portfolio of listed securities to access liquidity from single listed securities without selling them. It’s a powerful portfolio rebalancing tool, but it comes with certain risks and conditions that should be understood before using it. Below is a quick comparison of SBL to other strategies like margin loans and selling stocks:
SBL vs. Margin Loans vs. Selling Stocks: A Quick Comparison
| Feature | Securities-Based Lending (SBL) | Margin Loans | Selling Stocks |
|---|---|---|---|
| Access to Liquidity | Immediate, without selling | Immediate, but with limits | Immediate, but liquidates holdings |
| Ownership Retention | ✅ Keep your stocks | ✅ Keep your stocks | ❌ Lose ownership |
| Interest Costs | Fixed/variable rates apply | Typically higher than SBL | No interest, but may trigger taxes |
| Risk of Liquidation | Margin calls if collateral falls | Higher margin call risk | No risk—assets are sold |
| Tax Implications | No capital gains tax triggered | No capital gains tax triggered | Capital gains tax may apply |
Key Risk Factors of SBL
- Margin Calls: ALERT – If the value of pledged securities drops, additional collateral may be required, or the lender may liquidate assets to maintain the loan-to-value (LTV) ratio.
- Interest Rate Fluctuations: Depending on the loan agreement, interest rates may adjust over time, which could impact borrowing costs.
- Loan Limits: Not all securities qualify for SBL, and lenders typically set their own LTV ratios and eligibility criteria.
The Current State of Tech in the Market.
The dominance of technology in today’s market is undeniable, presenting both opportunities and challenges:
- Tech’s Outsized Influence: Technology isn’t merely a sector; it’s a primary market driver. The Nasdaq’s substantial growth since 2013 is largely attributed to tech giants.
- Elevated Valuations: The S&P 500 trades at approximately 22x forward earnings, with individual tech stocks often trading at much higher multiples (30x, 40x, or even 50x). These valuations are historically high and vulnerable to shifts in sentiment or economic conditions. The price-to-earnings ratio specific for the information Technology sector is even higher, at 27.7x.
- The “Magnificent Seven” Effect: A small group of mega-cap tech companies (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla) exert a disproportionate influence on market earnings. Any underperformance by these few players could trigger a significant market correction. As of early 2024 these companies comprised 28% of the S&P 500’s total market capitalisation.
- Economic Headwinds: Shifting economic conditions, including potential interest rate adjustments and evolving consumer spending, add further uncertainty to the high expectations embedded in tech earnings.
- Recent Underperformance: There are also some concerns related to the underperformance of the technology sector at the start of 2025.
The Problem: Concentrated Risk and Limited Options
Many HNWIs and institutional firms face a common challenge: substantial gains are locked within highly appreciated tech stocks, creating an over-reliance on a single sector. The traditional rebalancing method – selling appreciated assets – incurs significant capital gains tax liabilities, potentially eroding a substantial portion of hard-earned gains.
This creates a dilemma: maintain the risky concentration or pay a hefty price to diversify?
The Solution: Strategic Liquidity Through Securities-Based Lending (SBL)
Securities-Based Lending (SBL) as a and portfolio balancing tool offers a powerful and tax-efficient solution. Instead of selling appreciated tech holdings, SBL allows you to leverage their value to access liquidity without triggering a taxable event.
How SBLs can work as a portfolio rebalancing tool:
- Borrow Against Your Portfolio: Pledge a portion of your eligible securities (stocks, bonds, ETFs) as collateral for a loan.
- Access Liquidity: Receive a line of credit, typically at a competitive interest rate, based on the value of your pledged assets.
- Maintain Ownership: Critically, you retain ownership of your securities, continuing to benefit from any future appreciation and dividends.
- Rebalance and Diversify: Use the borrowed funds to invest in other investment categories, sectors, or strategies. This reduces concentration risk andcreates a more balanced, resilient portfolio.
Real-World Example
Consider a shareholder who has a large concentration in tech stocks like Tesla and Nvidia. Rather than selling these stocks, the investor uses securities-based lending as a portfolio rebalancing tool to borrow funds and invest into bonds, real estate, or ETFs, lowering their exposure to concentrated risk without triggering a tax event. This proactive approach allows them to manage risk while maintaining upside potential in the tech sector.
The Benefits of SBL for Portfolio Rebalancing
- Tax Efficiency: Avoid triggering capital gains taxes by borrowing instead of selling.
- Maintain Upside Potential: Keep existing tech holdings and participate in any further growth.
- Strategic Diversification: Deploy borrowed funds to reduce concentration risk.
- Flexibility: Use the line of credit for various purposes, including real estate, business opportunities, or other strategic initiatives.
- Competitive Rates: SBL often offers attractive interest rates compared to other financing forms.
- No extra fees: There are typically no setup, non-use, or cancellation fees.
FAQs – Securities-Based Lending as a Portfolio Rebalancing Tool
Q1: How does SBL help with diversification?
SBL allows you to access liquidity without selling stocks, providing an efficient portfolio rebalancing tool that allows you to invest in other asset classes or sectors and reduce concentration risk.
Q2: What are the key benefits of using SBL for rebalancing my portfolio?
The primary benefit of using SBL as a portfolio rebalancing tool is the tax efficiency it provides. By borrowing against your assets instead of selling them, you avoid the capital gains taxes that would typically arise from the sale of highly appreciated investments. This helps you preserve more of your wealth while strategically investing into new opportunities.
Q3: Is Securities-Based Lending suitable for all types of investments?
SBL works best for highly liquid assets like listed stocks, bonds, mutual funds and ETFs. As long as the pledged securities meet the lender’s criteria, it can be an effective tool for managing cash flow and a great portfolio rebalancing tool.
Q4: Can I use SBL to reduce the risks associated with a tech-heavy portfolio?
Absolutely. SBL is an ideal solution for those who are concerned about the concentration risks associated with a tech-heavy portfolio. By leveraging your tech stocks through SBL, you can access liquidity to invest in other asset classes or sectors, reducing your exposure to the volatile tech industry. Whether you choose to invest in ETFs or other low-risk assets, SBL gives you the ability to balance your portfolio without triggering a taxable event.
Q5: How does SBL compare to other forms of financing, such as margin loans or cash management strategies?
Securities-Based Lending typically offers lower interest rates compared to margin loans and is more flexible than traditional loans. Margin loans often require a higher collateral-to-loan ratio and can be risky due to their variable interest rates. SBL, on the other hand, tends to offer more favorable terms with a fixed rate, making it an attractive option for HNWIs looking for cost-effective cash flow management. Additionally, SBL allows you to maintain ownership of your investments, which margin loans may not always guarantee.
Q6: Can I use the liquidity from SBL for non-investment purposes?
Yes, the liquidity accessed through SBL can be used for a variety of purposes, not just investments. Whether it’s funding business opportunities, real estate acquisitions, or you need to rebalance; SBL offers the flexibility to deploy funds where they’re most needed, without the need to sell your assets or trigger capital gains taxes.
Q7:What is portfolio drift, and why does it matter?
It occurs when changes in market value cause portfolio allocations to shift away from an investor’s target allocation. Over time, this can impact an investor’s risk tolerance and overall financial goals. Regular rebalancing helps maintain alignment, ensuring the portfolio stays within the intended strategy.
Q8: How can investors manage portfolio drift efficiently?
Investors and advisors can use management tools to track rebalancing events and adjust portfolio allocations as needed. Whether through free portfolio rebalancing options or professional tools for financial advisors, staying proactive helps maintain a balanced and risk-appropriate portfolio.
Key Takeaways
- Strategic Diversification: Use SBL to access liquidity for investments like index funds, reducing concentration risk from overexposure to the tech sector.
- Cash Management Flexibility: SBL is a powerful tool for managing cash and ensuring liquidity for various investment and non-investment purposes.
- Tax-Efficient Strategy: By avoiding the sale of appreciated assets, SBL is a powerful portfolio rebalancing tool that helps preserve wealth while reducing tax liabilities.
Conclusion: Proactive Risk Management for a Sustainable Future:
The current market environment demands proactive risk management. Ignoring concentration risk in tech-heavy portfolios is a gamble. Securities-Based Lending provides a sophisticated, tax-friendly, portfolio rebalancing tool for HNWIs and institutional investors to:
- Unlock Liquidity: Access capital without selling appreciated assets.
- Reduce Concentration Risk: Invest into other asset classes and sectors.
- Preserve Wealth: Minimise tax liabilities and maintain upside potential.
- Position for the Future: Build a more resilient and balanced portfolio.
Final Thoughts
As we move through 2025, the risks of a tech-heavy portfolio are clear. Securities-Based Lending provides a tax-efficient, flexible solution to hedge against these risks without disrupting your investments. Act now to rebalance your portfolio, reduce concentration risk, and preserve your wealth. Contact Forbes Le Brock today to explore how SBL can help you navigate the future with confidence.
Consult with Forbes Le Brock today to explore the many benefits of SBLs and see if it’s the right portfolio rebalancing tool for your needs.
Take Action Now!
Don’t wait for a market correction. Speak with an advisor to explore how using Securities-Based Lending (SBL) can help you access liquidity and reduce concentration risk in your portfolio. Contact us today to determine if an SBL is the right tool for your financial needs, and learn how it can support your overall rebalancing process without triggering tax liabilities.