Investing

Rebalancing

Rebalancing is periodically adjusting a portfolio back to its target split between asset types.

Over time, the best-performing asset gains weight and pushes the portfolio's risk above what was intended. Rebalancing sells some of what rose and buys what lagged.

Once a year, or whenever an asset drifts more than five points from its target, is usually enough and avoids unnecessary costs.

Related terms

Diversification — Diversification means spreading investments across assets, sectors, countries and currencies whose behavior isn't perfectly correlated.
Rule of 110 — The rule of 110 suggests putting a percentage equal to 110 minus your age into stocks, and the rest into bonds.
Risk profile — Risk profile is the level of loss an investor can bear without jeopardizing their goals (capacity) and without selling in a panic (tolerance).

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Educational content. netclariq does not provide financial, investment, tax or legal advice.