Strategy
Rebalancing
The process of buying or selling assets to bring a portfolio back to its target allocation after market movements shift it.
Example
If a target 70/30 stocks-to-bonds portfolio drifts to 80/20 after a strong stock rally, rebalancing means selling some stocks and buying bonds to bring it back to the original 70/30 target.
Common Misconception
Rebalancing can feel counterintuitive — it means selling some of what's been performing well and buying more of what's lagged, which is uncomfortable but is exactly the mechanism that enforces "buy low, sell high" over time.
Why It Matters
Without periodic rebalancing, a portfolio's risk level can drift substantially from what an investor originally intended, often toward more risk than they meant to take on after a long bull run.