Rebalancing your portfolio: reset the mix

You set up a nice, balanced mix of investments. A year later, it looks completely different — not because you changed it, but because the market did. Fixing that drift has a name: rebalancing. Here it is in the plainest words possible.

Rebalancing means nudging your investments back to the mix you chose, after the ups and downs of the market have pushed them out of shape.

Why your mix drifts

Say you wanted 70% in stocks and 30% in bonds. (See: asset allocation) If stocks have a great year, they grow faster, and suddenly you're at 80% stocks. Your plan quietly turned riskier than you meant it to.

How rebalancing fixes it

You sell a little of whatever grew too big, and buy a little of whatever shrank, until you're back to your chosen mix. Or, even easier, you point new money at the part that's lagging so it catches up without any selling.

Notice the quiet magic: rebalancing makes you trim the winners and top up the laggards — a built-in “sell high, buy low” that runs on rules instead of emotion.

How often?

Not often. Once a year is plenty for most people, or whenever your mix drifts a long way off. Doing it constantly just racks up costs and taxes for no real gain.

The honest catch

Selling investments can trigger capital gains tax in a regular account, so rebalancing with new money or inside a retirement account is often tidier. And if you own a target-date fund or use a robo-advisor, the rebalancing is already done for you.

The takeaway

Rebalancing is resetting your investment mix back to plan after the market knocks it out of shape. Do it about once a year, ideally with new money, and it quietly keeps your risk where you wanted it.