Portfolio Rebalancing: Keeping Your Investment Goals on Track

Rebalancing your portfolio sounds boring — and a little like housekeeping — but it’s one of the simplest things you can do to keep your investments aligned with your goals. Think of it like pruning a garden: a little maintenance now prevents big problems later. In this article I’ll walk you through why rebalancing matters, how to do it, and some practical tips so you won’t overthink it.

Why rebalancing matters

Over time, different parts of your portfolio grow at different rates. Stocks might surge while bonds lag, or a single sector could out-perform and unintentionally dominate your allocation. If your target was 60% stocks and 40% bonds, but stocks grow to 75%, your risk profile just changed — and maybe not in a way you intended.

Rebalancing brings your holdings back to your chosen asset allocation, which helps manage risk and keeps you pursuing the goals you set in the first place. If you’re new to investing, check out our investing basics page for foundational ideas on risk and diversification.

When and how often should you rebalance?

Calendar-based rebalancing

Many investors pick a regular schedule: quarterly, semi-annually, or annually. This is simple and removes emotion from the process. I personally check mine every six months — that cadence fits my goals and keeps me from tinkering.

Threshold-based rebalancing

Another approach is to rebalance only when allocations deviate by a set percentage, say 5% or 10%. This can reduce trading and taxes but requires monitoring. For example, if your 60/40 portfolio shifts to 66/34, a 5% threshold would trigger a rebalance.

Common rebalancing methods

There are three practical ways to rebalance:

• Sell winners and buy laggards to return to target weights.
• Use new contributions to buy underweighted assets until balance is restored.
• Let dividends pile up in cash and deploy them to underweight areas.

Each method has trade-offs around taxes, transaction costs, and timing. For tax-advantaged accounts like IRAs, selling and buying is straightforward. In taxable accounts, consider tax consequences before you trade.

Practical tips and mistakes to avoid

Here are a few practical guideposts that have helped me and many investors I know:

• Don’t rebalance too often. Small swings are normal — frequent trading can eat returns through fees and taxes.
• Don’t ignore costs. Use low-cost ETFs or index funds when possible, and be mindful of trading fees.
• Automate when possible. Many brokerages offer automatic rebalancing for a set schedule or threshold.
• Match rebalancing to your life changes. Big life events (new job, home purchase, retirement) could require a strategic reset, not just mechanical rebalancing.

If you want a step-by-step process, our rebalancing guide walks through an example with calculators and worksheet ideas.

How rebalancing helps long-term results

Rebalancing forces you to ‘buy low, sell high’ in a disciplined way. That discipline reduces drift from your intended risk profile and can improve long-term returns by preventing concentration in over-performing assets right before they fall.

It’s important to remember no strategy guarantees success — and this isn’t a substitute for personalized advice. For general context on planning, see this external resource: Non financial advice.

Final thoughts — make it simple

Rebalancing doesn’t need to be complicated. Pick a sensible target allocation based on your goals and risk tolerance, decide on a schedule or threshold, and stick with it. I like to pair semi-annual checks with using new contributions to fill gaps; it keeps me consistent without overtrading.

If you’re just starting out, review the basics on our investing basics page, and when you’re ready, dive into our rebalancing guide for hands-on steps. Little maintenance now saves headaches later — and keeps your investment plan doing what it’s supposed to do: serve your goals.