Investing basics
Rebalancing returns a portfolio towards its intended allocation after market moves or cash flows change the weights. It is a risk-control process, not a promise to improve returns.
Make it click
Two baskets begin at chosen weights, then one grows heavier. Rebalancing removes or adds enough to restore the intended balance instead of letting yesterday's winner silently choose tomorrow's risk.
Now put that into markets
Portfolio weights drift as investments perform differently. Rebalancing trades, redirects new contributions or uses withdrawals to move exposure back within a rule or tolerance band.
A policy may rebalance on dates, when weights cross thresholds, or through cash flows. Frequency trades closer control against taxes, spreads, fees and the risk of unnecessary turnover.
Judge a rebalancing rule by its target, tolerance, costs and account constraints. Compare results with a clearly defined no-rebalance alternative rather than an unknowable perfect trade.
Rebalancing can sell an asset that keeps rising or buy one that keeps falling. It maintains a chosen risk structure; it does not identify when a target allocation itself should change.
Takeaway
