Last updated: January 19, 2026
Rebalancing means periodically adjusting your portfolio to maintain your target asset allocation (e.g., 60% stocks, 40% bonds).
As some assets outperform, your allocation drifts. Rebalancing systematically sells overweighted positions and purchases underweighted ones—implementing a disciplined approach to "buy low, sell high."
Tax-efficient rebalancing uses new contributions and retirement account adjustments when possible.
Understanding portfolio rebalancing helps you make better investment decisions and plan for taxes. Use our portfolio risk to see how it applies to your situation.
Rebalancing is the process of realigning the weightings of a portfolio's assets. It involves buying or selling assets to maintain your original desired level of risk and returns.
Most investors rebalance once a year or whenever their allocation drifts by more than 5% from their target. Quarterly is also common for more active managers.
Rebalancing is primarily a risk-management tool. However, it often forces you to 'sell high' (your winners) and 'buy low' (underperforming assets), which can improve long-term risk-adjusted returns.
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