Rebalancing

Rebalancing is selling what has grown past its target weight and buying what has shrunk below it, restoring a portfolio to its intended allocation. Left alone, portfolios drift toward whatever ran hottest: a 60/40 mix left untouched through a long bull market quietly becomes 75/25, carrying far more equity risk than its owner signed up for.

It is systematic buy-low, sell-high, executed by rule instead of feel. The common triggers are calendar-based (annually or quarterly) and band-based (act when a weight drifts 5 percentage points from target); research finds little return difference among reasonable rules, so the best one is whichever you will follow. In taxable accounts each rebalancing sale can realize capital gains, so investors often rebalance with new contributions or inside retirement accounts first.