What Is Rebalancing?
Rebalancing is the process of adjusting a portfolio to maintain its desired asset allocation. This involves selling assets that have increased in value and buying those that have decreased, so as to keep the overall mix of investments consistent with an investor’s goals. Rebalancing can help investors manage risk by ensuring their portfolios are not overly exposed to any one type of investment or sector. It also helps them take advantage of market opportunities by allowing them to buy low and sell high.
Rebalancing should be done on a regular basis, typically once per year or when certain thresholds are reached (e.g., if an asset class has grown too large relative to other holdings). Investors may choose to rebalance manually or use automated tools such as target-date funds which automatically adjust allocations over time based on predetermined criteria. Ultimately, rebalancing is important for helping investors stay disciplined and focused on long-term objectives while managing short-term volatility in markets.