In one line: Over time a portfolio drifts from its target mix as some classes grow faster; rebalancing is the gentle nudge that brings it back.
You set an allocation, and then the market does its thing. Months later, the slices no longer match what you started with. Rebalancing is simply how you tidy that drift.
Why does a portfolio drift over time?
When one class grows faster than another, its slice quietly gets bigger, and the others shrink in proportion. After a strong run in the growth-focused classes, a portfolio can end up carrying more risk than it did at the start — without you changing a thing.
What does rebalancing actually do?
Rebalancing nudges the slices back toward their target proportions. In practice that means letting the parts that grew make room again for the parts that lagged, so the overall mix keeps matching the profile it was built for.
Why does rebalancing help?
The point is not to chase returns — it is to keep risk where you intended. Left alone for years, drift can turn a balanced portfolio into a much bouncier one. A periodic check keeps the ride in line with your comfort and horizon.
How often should you rebalance?
Rebalancing is a calm, occasional habit, not a constant fiddle — many approaches check on a simple schedule, perhaps once a year, or when a slice has drifted well off target. Doing it rarely and steadily tends to beat tinkering.
Key takeaways
- Portfolios drift as some classes grow faster than others.
- Rebalancing nudges the slices back to their target mix.
- Its job is to keep risk aligned with your profile, not to chase returns.
- It is an occasional, scheduled habit — not constant tinkering.