About Portfolio Rebalancing
Portfolio rebalancing restores your asset allocation to target weights when market movements cause drift. Regular rebalancing controls risk and maintains investment discipline.
Common Strategies
- โขCalendar rebalancing: quarterly/semi-annual/annual
- โขThreshold rebalancing: when an asset deviates >5%
- โขCash flow rebalancing: use new contributions to buy underweight assets
Considerations
- โขConsider transaction costs (commissions, taxes)
- โขRebalance in retirement accounts to avoid tax impact
- โขDon't overtrade โ moderate drift is normal
What is portfolio rebalancing?
Restoring asset allocations to target weights when markets cause drift. If stocks grow from 60% to 70%, you sell stocks and buy bonds to restore 60/40.
How often should I rebalance?
Common approaches: calendar (annual/semi-annual), threshold (deviation >5%), or hybrid. Calendar rebalancing is simplest.