What Is Rebalancing? Meaning & Example
Definition
Rebalancing is adjusting your portfolio back to its target mix after market moves cause it to drift. It keeps risk in line with your plan.
Related terms
Asset allocation is how you divide your portfolio among asset classes such as stocks, bonds and cash. It is one of the biggest drivers of both risk and long-term returns.
PortfolioA portfolio is the full collection of investments you own, such as stocks, bonds, funds and cash. Looking at it as a whole helps manage overall risk.
DiversificationDiversification means spreading money across different investments so one poor performer does not sink your whole portfolio. It reduces risk but cannot eliminate it.
What is Rebalancing?
Rebalancing is adjusting your portfolio back to its target mix after market moves cause it to drift. It keeps risk in line with your plan.
Can you give an example of Rebalancing?
If stocks grow from 60% to 70% of your portfolio, selling some stocks and buying bonds restores the 60/40 mix.