Rebalancing is the action of bring a portfolio of investments that has deviated away from one's target asset allocation back into line. Under-weighted securities can be purchased with newly saved money; alternatively, over-weighted securities can be sold to purchase under-weighted securities.

Rebalancing controls risk

---

The investments in a portfolio will perform according to the market. As time goes on, a portfolio's current asset allocation can move away from an investor's original target asset allocation. If left un-adjusted, the portfolio could either become too risky, or too conservative. The goal of rebalancing is to move the current asset allocation back in line to the originally planned asset allocation.

Rebalancing strategies

---

There are many possible rebalancing strategies. The exact choice is probably not too important, as long as the rebalancing is performed consistently.

• Rebalancing every year:

Rebalancing at exactly the same time each year is easy to remember.

• Rebalancing every 15 months:

The hope is to make a sale qualify for long term capital gain in the United States.

• Rebalancing when current allocation is 5% off from target asset allocation:

Touch nothing except when allocation is off noticeably.

References

---

See also

---

• Asset allocation

Investment