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Portfolio Management
Rebalancing
The process of realigning your portfolio back to your target asset allocation by buying and selling investments. It maintains your desired risk level over time.
Portfolio Drift Simulation
10%
Target Allocation
stocks
60%
bonds
30%
cash
10%
Current Allocation (After Drift)
stocks
70%+10
bonds
22%-8
cash
8%-2
Maintain Risk Level
As winners grow, your portfolio can become riskier than intended. Rebalancing keeps risk in check.
Buy Low, Sell High
Rebalancing naturally forces you to sell overperformers and buy underperformers - a disciplined approach.
Stay Disciplined
Removes emotion from investing. Instead of chasing performance, you follow a systematic process.
Rebalancing Strategies
Calendar-Based
Rebalance on a set schedule (quarterly, semi-annually, or annually). Simple and removes decision-making.
Best for: Hands-off investorsThreshold-Based
Rebalance when any asset class drifts more than 5-10% from target. More responsive to market moves.
Best for: Active investorsImportant Considerations
- Tax Impact:In taxable accounts, selling winners triggers capital gains taxes. Consider rebalancing with new contributions instead.
- Transaction Costs:Frequent rebalancing can rack up trading fees. Balance precision with practicality.
- Don't Over-optimize:Annual rebalancing is sufficient for most investors. More frequent changes rarely improve outcomes.