Rebalancing
The process of realigning the weights of assets in a portfolio back to their original target allocation. This typically involves selling assets that have grown beyond their target and buying those that have fallen below.
Rebalancing is a disciplined portfolio management practice that keeps your investment mix aligned with your goals and risk tolerance. Over time, different assets grow at different rates, causing your actual allocation to drift from your targets. A portfolio that started as 60% stocks and 40% bonds might drift to 75/25 after a bull market, taking on more risk than intended.
Rebalancing Approaches
- Calendar-based — Rebalance on a fixed schedule (quarterly, semi-annually, or annually)
- Threshold-based — Rebalance when any asset class drifts beyond a set band (e.g., 5% from target)
- Hybrid — Check on a schedule but only rebalance if thresholds are breached
Rebalancing enforces a contrarian discipline: you systematically sell winners and buy laggards. While this can feel counterintuitive, research shows it can improve risk-adjusted returns over time. For a complete walkthrough, read our portfolio rebalancing guide.