Rebalancing your portfolio
Why you should occasionally sell winners and buy losers, and how often to do it.
Suppose you start with an 80/20 stocks/bonds allocation. Stocks do great for three years and now you're at 90/10. Your portfolio is now riskier than you intended — not because you chose to take more risk, but because the market chose for you. Rebalancing is the act of periodically bringing your allocation back to your target.
Why it matters
- Maintains the risk level you actually chose, instead of drifting with whatever's hot.
- Forces a 'sell high, buy low' discipline — you trim what went up and add to what went down.
- Over decades, a small but real return boost in certain conditions (the rebalancing bonus).
How often to rebalance
Once a year is plenty. More often than that usually just creates trading costs and taxes without improving returns. A popular alternative: rebalance whenever any asset class drifts more than 5 percentage points from its target (so if you want 60% stocks, rebalance when you hit 65% or 55%).
Target-date funds handle this for you
If your entire portfolio is inside a single target-date fund (common in 401ks), rebalancing happens automatically inside the fund. You don't need to do anything. This is one of the reasons target-date funds are a legitimately good default for most people.
Put this into practice
Worth tracks your accounts, budgets, and goals — so the concepts in this article aren't just theory.
Get started free