Rebalancing
Over time your mix drifts. Rebalancing brings it back to what you chose.
How it drifts
You start with 60% in shares and 40% in bonds. Shares rise 30% and bonds stay flat. Now shares are 66% of the total: more risk than you chose, without deciding anything.
Bringing it back
Rebalancing sells some of what grew and buys what lagged, or simply puts new money into the part that is behind. Using new money avoids selling, and so avoids costs and tax on gains.
When
Two common rules: once a year on a set date, or whenever a part moves more than a few points from its target. Checking too often adds costs; never checking lets the mix become something else.
What it does
Rebalancing keeps your risk where you put it. It does not promise more return. It does make you buy what fell and trim what rose, which is hard to do on feeling alone.
Key takeaways
- Mixes drift as prices move.
- New money is the cheapest way to rebalance.
- A simple rule beats deciding by feeling.