What it is
Rebalancing is the practice of realigning the weightings of a portfolio of assets. Over time, market movements can cause the initial asset allocation to drift. For example, a strong bull market might increase the equity portion of a portfolio beyond its target. Rebalancing involves selling some of the outperforming assets and buying more of the underperforming ones to restore the desired asset mix.
This strategy helps maintain the portfolio's intended risk level and ensures it remains aligned with an investor's goals. Regular rebalancing, often done annually or semi-annually, prevents a portfolio from becoming too concentrated in assets that have performed well, which might increase risk. It also encourages selling high and buying low, a disciplined approach that can enhance long-term returns.
Why it matters
Rebalancing keeps your portfolio aligned with your risk tolerance and investment goals. It's a disciplined way to manage risk and potentially boost returns.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice