In 2025, the S&P 500 could see its third consecutive year of double-digit gains, driven by tech stocks like Alphabet, Amazon, and Tesla. Advisors are cautious about valuations in these large-cap names and are recommending diversification to manage risk and rebalance portfolios.

Advisors are trimming exposure to the top tech stocks, known as the Magnificent Seven, to reduce risk and enhance tax-related strategies. While these companies have been top performers, advisors are emphasizing the importance of a diversified portfolio to mitigate potential market corrections and maximize returns.

Financial advisors are exploring opportunities outside the tech sector, such as large-cap healthcare and financials. By diversifying into overlooked sectors like pharmaceuticals and energy, advisors aim to capitalize on attractive valuations and potential growth opportunities in 2026.

With market volatility on the rise, advisors are turning to active management strategies and diversifying portfolios by size and sector. By focusing on factors like momentum and quality, advisors seek to identify winners in sectors like healthcare, financials, energy, and materials amidst changing market conditions.

As the Fed cuts rates and the dollar weakens, international investing remains attractive, particularly in Western Europe and emerging markets. Advisors are recommending mutual funds or ETFs for exposure, emphasizing the importance of diversification across developed and emerging markets for long-term growth potential.

Some advisors are cautious about private credit investments amid concerns about underwriting standards and recent bankruptcies. While the golden era of private credit may not be over, diversification and manager selection are key to managing risks in alternative asset classes.

Two key macroeconomic trends could impact markets in 2026: tax refunds from the new tax law and midterm elections. Despite potential challenges like taxes, spending, and AI regulation, history shows that recoveries following market corrections are robust for long-term investors who navigate political uncertainties.

As advisors target diversification strategies in 2026, the focus is on managing risk in a changing market environment. By rebalancing portfolios, exploring new sectors, and emphasizing diversification, advisors aim to optimize returns and navigate potential market challenges in the coming year.

Read more at Yahoo Finance: Advisors Target Diversification in 2026 Strategies as Mag 7 Risk Rises