Rebalancing
Your portfolio doesn’t stay the mix you set it to — left alone, winners grow into a bigger share and quietly change how much risk you’re actually carrying.
What Is It
Rebalancing means periodically buying and selling within your portfolio to bring it back to your original target asset allocation. Since different assets grow at different rates, an untouched portfolio drifts away from its starting mix over time, whether you intended that or not.
Why It Matters
Without rebalancing, a strong stretch for stocks can quietly push your portfolio into a riskier mix than you actually chose — you end up more exposed right as the market has already run hot, not by any active decision, just by drift. Rebalancing forces you to sell some winners and buy more of what’s lagged, which also happens to be a disciplined, built-in way to buy low and sell high.
Quick Example
Start with $100,000 split 70/30 between stocks and bonds ($70,000 / $30,000). Stocks climb 50%, bonds climb 10%: stocks are now worth $105,000, bonds $33,000, for a total of $138,000 — but the mix has drifted to roughly 76% stocks / 24% bonds. Rebalancing means selling some stock gains and buying bonds to get back to the original 70/30 split, rather than letting that drift continue unnoticed.
Try It Yourself
Rebalancing exists because different allocations grow at different rates — see that drift for yourself.
📈Compound Interest Calculator
Model how different growth rates compound differently over time — the exact drift that makes rebalancing necessary.