Glossary
Rebalancing
Rebalancing is the process of periodically buying and selling within a portfolio to restore its intended asset allocation after market moves have shifted it.
A 60/40 stock-bond portfolio left alone through a strong stock market may drift to 75/25 — a different, riskier portfolio than the one chosen. Rebalancing trims what has grown and adds to what has lagged, on a calendar schedule or when allocations drift past set bands.
Why it matters in practice
Rebalancing is primarily risk control, not return enhancement: it keeps the portfolio matched to the risk level actually chosen, and it systematizes selling high and buying low — the behavior investors find hardest to do on instinct, especially in downturns. In taxable accounts, rebalancing can trigger capital gains, so it is often done with new contributions, dividends, or inside retirement accounts first.
Related terms: Asset Allocation · Portfolio · Investment Policy Statement · Volatility · Capital Gain