By Steve Giles
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When Should I …rebalance my portfolio?
Seeing how your equities are balanced, a Money Talk Video with Kyle Tetting
Rebalancing: More investing, less emotion, a Money Talk Video with Steve Giles
Beginners Guide to Asset Allocation, Diversification and Rebalancing, from the U.S. Securities and Exchange Commission
Asset Allocation and Diversification, from the Financial Industry Regulatory Authority
Having a balanced, well-diversified portfolio is fundamental to investing. To suit their individual needs and risk tolerance, each investor needs to find the right balance between long-term appreciation and short-term security.
But once you establish balance, you need to maintain it. That doesn’t happen by standing still. As market forces move your portfolio, you need to reposition.
Rebalancing is the process of realigning the weightings of a portfolio’s assets back to your intended allocation. For example, say your target balance is 60% stocks and 40% bonds. If a strong stock market performance shifts that mix to 70/30, then you would sell some stocks and buy bonds to restore your original 60/40 allocation.
What are the reasons for rebalancing?
Many investors forget — or simply put off — the crucial step of rebalancing.
Rebalancing is about managing risk. When one part of your portfolio grows much faster than the rest, you end up taking on more risk than you probably intended. Over time, that imbalance can expose you to greater volatility, potentially throwing your investment plan off course.
But it’s not just about risk control. Rebalancing also reinforces smart investing behavior. It encourages you to sell high and buy low — the opposite of what emotions often push us to do. When done consistently, rebalancing keeps your strategy intact amid unpredictable markets.
Why don’t more investors rebalance?
Some common reasons:
- It’s easy to procrastinate. Rebalancing isn’t exciting, and it doesn’t feel urgent—until a downturn reminds you that your portfolio drifted too far.
- Emotional bias. It can be hard to sell investments that have done well. No one likes the idea of “cutting the winners,” even when it’s the smart thing to do. But holding on to them can lead to overexposure and unintended risk.
- Taxes and transaction costs. Selling appreciated assets in taxable accounts can trigger capital gains, so many investors hesitate — even if their portfolio has become lopsided.
- The timing-the-market misconception. In reality, trying to guess the best moment to rebalance usually backfires. A disciplined, scheduled, planned approach toward rebalancing tends to work better over time.
- Ignorance. Some investors simply aren’t aware of the importance of rebalancing — or they don’t have a process in place to guide it.
What can you do?
The good news is that rebalancing doesn’t have to be complicated. You can set up automatic rebalancing with many investment platforms. You can also choose to rebalance on a regular schedule (like annually or semi-annually) or whenever your allocations drift beyond a certain threshold.
Most importantly, treat rebalancing as part of your regular financial maintenance. Just like changing the oil in your car or going in for a medical checkup, it may not be glamorous, but it’s essential for long-term performance and peace of mind.
Bottom line: Rebalancing helps you stay in control of your risk, make smarter investment decisions and stay aligned with your goals. Don’t let inertia, emotion or short-term thinking get in the way of something so fundamental to your long-term success. Frequent reviews with your advisor will help you stay on top of rebalancing.
Steve Giles is senior vice president and an investment advisor at Landaas & Company, LLC.