rebalancing
The process of realigning the proportions of assets in a portfolio to maintain a desired level of asset allocation.
Example
“She rebalanced her portfolio annually, selling stocks that had grown too large and buying bonds.”
Memory Tip
RE-balancing — you RESTORE BALANCE. When one investment grows too large, you trim it back.
Why It Matters
Rebalancing helps you maintain your intended risk level and prevents your portfolio from becoming too concentrated in high-performing assets that may be overvalued. Without regular rebalancing, your investment strategy can drift away from your original goals and leave you exposed to more risk than you intended to take.
Common Misconception
Many people believe that rebalancing means constantly buying and selling to chase better returns, but it actually does the opposite by enforcing a disciplined approach to buy low and sell high. Rebalancing is about maintaining your target allocation, not trying to time the market or maximize short-term gains.
In Practice
Imagine you start with a 60 percent stocks and 40 percent bonds portfolio worth $100,000. After a year, strong stock performance grows your stocks to $70,000 while bonds stay at $30,000, shifting your allocation to 70 percent stocks and 30 percent bonds. To rebalance, you would sell $10,000 of stocks and buy $10,000 of bonds to return to your original 60 percent stocks and 40 percent bonds target.
Etymology
Re (again) + balancing — restoring balance to a portfolio.
Common Misspellings
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