Rebalancing
Periodically returning your investments to their intended split after growth has pulled them out of line.
Left alone, a portfolio drifts. Whatever has grown fastest becomes a larger share of it, which quietly increases risk — you end up more exposed to the thing that has already run.
Rebalancing sells some of what rose and buys what did not, returning to your chosen split. Uncomfortable, because it means trimming the winner, which is exactly why it works as a discipline.
Once a year is plenty for most people. More often adds cost and possibly tax without adding much.
It is not market timing. Timing tries to predict what happens next; rebalancing responds to what already happened, using a rule you set in advance.
Words on this page
- Portfolio — Everything you own as investments, considered as one thing rather than separately.
- Share — A small piece of ownership in a company, including a claim on its profits.
- Risk — The chance that an outcome is permanently worse than you needed it to be.
- Market — All the buyers and sellers of an asset together — nobody sets the price from above.
Related terms
Covered properly in Learn.