Rebalancing
Periodically realigning a portfolio back to its target weights after prices drift them apart: trimming what has grown, topping up what has lagged, on a fixed rule.
Also called: rebalance
Rebalancing is the disciplined act of returning a portfolio to its intended allocation. As some holdings outperform others, the mix drifts away from its target; rebalancing trims the winners and tops up the laggards to restore the plan.
Done on a fixed schedule or trigger rather than by feel, it enforces "buy low, sell high" as a rule instead of a hope, and keeps risk from quietly concentrating in whatever has run up most. It is a core mechanic of most rules-based allocations.
Related terms
- Tactical Asset Allocation (TAA)Adjusting a portfolio's mix of broad asset classes over time in response to the market environment, instead of holding fixed weights regardless of conditions.
- DiversificationSpreading capital across assets that behave differently, so weakness in one is offset by others. It reduces avoidable risk but does not remove market-wide risk.
- Asset classA broad category of investments that behaves distinctly (equities, bonds, gold, commodities): the building blocks of a diversified, tactically allocated portfolio.