Definition
What is portfolio rebalancing?
Rebalancing is periodically restoring a portfolio to its target weights. It usually means trimming what has grown and adding to what has lagged, so the portfolio remains aligned with the risk, timeline, and income needs established in the financial plan.
As markets move, a portfolio can drift away from its original targets. Rebalancing brings those weights back toward the allocation selected for the plan rather than allowing recent market performance to make the decision by default.
Rebalancing can involve taxes, transaction costs, and the possibility of trimming an area that continues to rise. The appropriate approach depends on account type, tax circumstances, and the broader financial plan.
This definition is for educational purposes only and does not constitute investment, tax, or legal advice. Rules and thresholds change; consult a qualified professional about your situation.