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How does portfolio rebalancing work?

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Quick answer

Rebalancing means periodically adjusting your investments back to your target mix. Over time, winners grow and shift your allocation; rebalancing sells some of what's grown and buys what's lagged, keeping your risk level steady and enforcing 'buy low, sell high'.

Step by step

  1. Investments drift from your target mix over time.
  2. Rebalancing restores the original allocation.
  3. You trim winners and top up laggards.
  4. It keeps risk in check and enforces discipline.

People also ask

How does portfolio rebalancing work?
You sell some assets that have grown and buy those that lagged, returning to your target allocation.
Why rebalance a portfolio?
To keep your risk level consistent and avoid being overexposed to whatever has recently soared.
How often should you rebalance?
Commonly once or twice a year, or when allocations drift beyond a set threshold.