Portfolio
Rebalancing
Over time, strong-performing assets grow to occupy a larger share of a portfolio than intended, which can quietly increase risk. Rebalancing restores the original allocation by trimming winners and topping up laggards.
The discipline enforces a buy-low, sell-high habit, since it means selling assets that have run up and buying those that have lagged. Many investors rebalance on a schedule or when weights drift beyond a set threshold.
Rebalancing is less about boosting returns and more about controlling risk, keeping a portfolio aligned with the investor's plan rather than letting the market dictate its shape.
Example
If stocks rally and grow from 60% to 70% of a portfolio, rebalancing would sell some stock to restore the 60% target.
Rebalancing — FAQ
What is Rebalancing?
Rebalancing is the process of periodically adjusting a portfolio back to its target asset mix by buying and selling holdings that have drifted from their intended weights.
Can you give an example of Rebalancing?
If stocks rally and grow from 60% to 70% of a portfolio, rebalancing would sell some stock to restore the 60% target.
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