Let me ask you something—have you ever looked at your investments and thought, “Wow, one part of my portfolio is growing faster than the rest”? Maybe your stocks have taken off while your bonds are sitting quietly in the background. That’s normal. But here’s the thing: if you don’t step in and adjust, your portfolio can slowly drift away from the balance you wanted. And that’s where rebalancing comes in.
What is rebalancing?
Rebalancing is simply adjusting your investments back to the mix you originally planned. Let’s say you decided to keep 80% in stocks and 20% in bonds. If stocks go up a lot, that 80/20 mix might quietly turn into 85/15. Suddenly, you’re taking on more risk than you agreed to.
Rebalancing fixes that. You either sell some of what has grown too much or add more money to the areas that fell behind. The idea isn’t to chase the hottest investment, but to keep your portfolio steady and in line with your goals.
Think of it like driving a car—you don’t just set the wheel once and hope to stay on the road. You make small corrections along the way.
Why most people skip it
Here’s the truth: very few people actually rebalance the right way. Why?
- Some don’t even know they’re supposed to.
- Others get nervous about selling something that’s doing really well.
- And many people simply don’t have the time to track every little change.
The result? Their portfolios slowly tilt toward whatever asset is performing best. That sounds good in the short term, but over time it can expose them to risks they never signed up for.
How rebalancing really works
So, how do you actually do it? Let’s break it down step by step in plain English.
Step 1: Compare
Look at your current investments. Are you still close to your original plan? If you wanted 80% stocks and 20% bonds, but now it’s 85% and 15%, you’ve drifted.
Step 2: Decide
Ask yourself: Am I still okay with my original mix, or have my goals changed? Maybe you’re closer to retirement now and want to take less risk.
Step 3: Adjust
If you’re off balance, here are your options:
- Sell some of what grew too much and put that money into the lagging asset.
- Add new money into the weaker area instead of selling.
- Use withdrawals smartly—if you need to take money out, take it from the side that’s overweight.
Step 4: Repeat
Do this once a year (that’s enough for most people). Some prefer twice a year or even quarterly. There’s no perfect rule, but the key is consistency.
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Why it matters
Let’s be real: ignoring rebalancing can feel easier. After all, if stocks are on fire, why touch them? But here’s the catch—what goes up fast can also come down fast. Without rebalancing, you might be taking on way more risk than you realize.
By rebalancing, you’re doing two powerful things:
- Protecting yourself from big losses by trimming back the areas that got too heavy.
- Buying low and selling high without even thinking about it—because you’re automatically moving money from what’s up to what’s down.
That’s smart investing.
Can a robo-advisor help?
If all this sounds overwhelming, you’re not alone. That’s why robo-advisors exist. Services like Wealthfront or Schwab Intelligent Portfolios do the math and adjustments for you. You just answer some questions about your goals and risk level, and the system rebalances for you automatically.
It’s like having a personal financial assistant who never forgets to check your portfolio.
The pros and cons
Let’s be fair—rebalancing isn’t perfect.
Pros:
- Keeps your risk in check.
- Forces discipline (buy low, sell high).
- Makes your portfolio steadier in the long run.
Cons:
- You might reduce returns because you’re trimming winners.
- It takes time and effort if you do it yourself.
- It can create tax issues in taxable accounts.
But here’s the bottom line: the pros usually outweigh the cons, especially if you care about long-term stability.
Why almost no one does it right
Most people rebalance too little, too late, or not at all. Some rebalance way too often, which can actually hurt returns. The sweet spot is finding a rhythm that works for you—usually once a year—and sticking with it.
Remember, investing isn’t about making the most exciting moves. It’s about staying on track with your goals, even when the market gets noisy.
