What it is
Rebalancing involves adjusting an existing investment portfolio to make sure it holds the right mix of assets that you want.
Let’s say you originally created a portfolio with 50% in stocks and 50% in bonds. After a while, a few bonds reached maturity, leaving you with more stocks than bonds.
By rebalancing your portfolio, you can bring the allocation back to the original strategy you chose.
What it means for you
To simplify investing, you can pick an asset allocation approach that matches your risk tolerance and money goal.
Over time, your portfolio’s asset allocation can shift even if you don’t make any changes. This is because of market movements and/or investments reaching their scheduled end.
Regular rebalancing helps fix this. It can keep you on track with goals and avoid taking on more risk than you intended.
If you have more high-risk investments than you planned to hold, you may sell the surplus to buy safer assets and maintain the balance. You can do the opposite if you’re seeking more growth and are OK with a higher level of risk.
