How to rebalance your portfolio (and whether it is really worth it)

Rebalancing a portfolio means returning each asset's weight to its target proportion after the market has thrown it off. If you start with 80% in equities and 20% in bonds, and stocks rise much more than bonds, a year later you might have 88%/12% without having made any decision — the market made it for you.

Why it matters

That drift is not free: your portfolio has taken on more risk than you originally chose, without you consciously deciding to. Rebalancing is not about "timing the market"; it is about maintaining the risk level you defined when you designed your portfolio.

Two common methods

• Calendar-based: you review and adjust weights on a fixed date (e.g. once a year). Simple and easy to keep to mentally.
• Threshold-based: you only rebalance if an asset drifts beyond a defined threshold (e.g. ±5 percentage points from its target weight), checking more often but acting less frequently.

Practical example

Target: 70% equities / 30% bonds. After a strong year for stocks, your portfolio becomes 78%/22%. To rebalance, you sell the extra 8% in equities and put it into bonds until you're back to 70%/30% — or, if you keep contributing monthly, you simply direct new contributions toward bonds until the weight corrects itself, with no need to sell anything.

Periodic contributions: "free" rebalancing

If you contribute every month, the simplest way to rebalance is to steer where the next contribution goes rather than selling existing positions — it avoids triggering a sale (and its potential tax) and achieves the same effect over time.

What if I never rebalance?

It is not a fatal mistake: letting a portfolio run untouched is also a valid strategy, and in fact it usually ends up more heavily weighted toward equities (which historically return more over the long term). Rebalancing is a risk-control tool, not a way to maximize returns — it helps you sleep soundly with the risk level you chose, not beat the market. It goes hand in hand with diversification: spreading your portfolio well at the start does little good if you let time throw it out of balance without noticing.