What is Rebalancing?
Periodically adjusting your holdings back to their target weights after market moves shift them.
Educational — not investment advice
Over time, winners grow to occupy a larger share of a portfolio than intended, quietly raising its risk. Rebalancing sells some of what has grown and adds to what has lagged, restoring the target allocation.
It enforces a "buy low, sell high" discipline mechanically, and it keeps a portfolio’s risk profile aligned with what you originally chose.
The trap most people miss
Rebalancing too often racks up costs and taxes; too rarely lets risk drift. And in taxable accounts, selling to rebalance can trigger capital gains — sometimes it is better to steer new contributions toward the underweight assets instead.
Frequently asked about Rebalancing
How often should I rebalance?
Common approaches are on a schedule (e.g. yearly) or when an allocation drifts past a threshold (e.g. 5% off target). Both aim to control risk without over-trading.
Does rebalancing improve returns?
Its main job is controlling risk, not boosting returns. It can help returns by trimming winners and adding to laggards, but that is a side effect, not a guarantee.
Related terms
Guides that use Rebalancing
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This definition is for educational purposes only and is not investment, tax, or financial advice. Concepts are explained in general terms; how they apply to your situation can differ. Always do your own research.