Rebalancing

Over time, the best-performing assets grow into an outsized share of a portfolio. A 70/30 stock-and-bond split can drift to 85/15 after a strong run — leaving you with far more risk than you chose.

Rebalancing restores the target allocation by trimming what has grown and adding to what has lagged. It is a discipline for controlling risk, not a technique for increasing returns, and it enforces selling high and buying low at exactly the moments instinct resists.

Annually, or whenever an allocation drifts more than about five percentage points from target, is a common and sufficient cadence. Rebalancing more often adds costs without adding benefit.

In taxable accounts, selling to rebalance realizes capital gains. Directing new contributions toward the underweight asset is often a cleaner way to get back on target. Inside a 401(k) or IRA there is no tax consequence, and many plans will rebalance automatically.