In plain words: Periodically restoring a portfolio to its target mix, because some asset classes grow faster than others and drift the weights.
Rebalancing is the act of nudging a portfolio back toward the asset-class weights you originally chose. Over time, faster-growing classes quietly take up more space than intended, so rebalancing brings the mix back into line.
Why do the weights drift in the first place?
Asset classes rarely grow at the same pace. If global equities rise strongly while bonds hold steady, the equity slice swells and the portfolio drifts toward more risk than the target asset allocation intended. Left unchecked, a calm 60/40 blend can slowly become something far more exposed.
How does rebalancing usually work?
Typically it means trimming the classes that have grown beyond their target and topping up those that have shrunk, returning to the planned weights. People often do this on a set schedule or when a class drifts past a chosen threshold. Knowing your target is part of how a portfolio is built.
Key takeaways
- Rebalancing restores a portfolio to its target asset-class mix.
- Weights drift because asset classes grow at different rates.
- It is usually done on a schedule or when drift crosses a threshold.