Long-term investing isn't just about choosing investments and leaving them untouched forever. As markets move, some investments grow faster than others, causing your portfolio to gradually move away from its original allocation.

Portfolio rebalancing is the process of bringing those investments back toward your intended allocation.

For example, imagine you started with a portfolio containing 60% stocks and 40% bonds. If stocks perform strongly over time, your portfolio might eventually become 70% stocks and 30% bonds. You now have more exposure to stocks - and potentially more risk, than you originally intended.

Rebalancing helps bring the portfolio back toward its target.

The main purpose of rebalancing isn't to predict which investment will perform best next. It's to maintain the level of risk your investment strategy was designed around.

Different investments rarely move at exactly the same pace. A strong stock-market rally, for example, can cause stocks to become a much larger part of a portfolio than originally planned.

That creates allocation drift.

Rebalancing can help investors:

There isn't one perfect schedule for every investor. Two of the most common approaches are calendar-based rebalancing and threshold-based rebalancing.

Some investors also combine the two.

With a calendar-based strategy, you review your portfolio at a predetermined interval.

For example:

The important part is consistency rather than constantly reacting to market movements.

Instead of rebalancing on a specific date, you establish a drift threshold.

For example, suppose your target stock allocation is:
60% stocks

You might decide to review the portfolio whenever stocks move outside a range such as:
55%–65%

If stocks rise enough to become 67% of the portfolio, the threshold has been exceeded and you may rebalance. This approach focuses on how far the portfolio has moved from its target, rather than how much time has passed.

A hybrid strategy combines both methods.

You might review your portfolio once or twice a year but only make trades if an allocation has moved beyond your predetermined threshold.

For example:
Review: Every six months
Rebalance: Only when an allocation is more than 5 percentage points away from target

This can provide a structured way to monitor the portfolio without automatically trading every time a review date arrives.

Once you've established your target allocation and rebalancing rules, the process is relatively straightforward.

Look at what percentage of your portfolio is currently invested in each major asset class.

For example:

Your portfolio has become more heavily weighted toward stocks.

Determine which investments have become overweight and which have become underweight. This is especially important in portfolios containing multiple stock sectors or individual companies.

There are several ways to rebalance.

You can:

After making changes, check whether the portfolio is reasonably close to its target allocation. The goal isn't necessarily to hit every percentage to the exact decimal. The goal is to keep the portfolio aligned with the strategy you've established.

One common misunderstanding is that rebalancing means trying to predict what the market will do next.

It doesn't.

Suppose stocks have performed extremely well and now represent more of your portfolio than intended. Selling some stocks to restore your target allocation doesn't necessarily mean you believe stocks are about to crash.

You're simply following your predefined portfolio strategy.

Likewise, adding to an underweight asset doesn't mean you're predicting that it will outperform next month.

Rebalancing is about maintaining portfolio structure - not predicting the future.

Rebalancing can involve buying and selling investments, so costs matter.

Depending on the account and tax jurisdiction, selling an investment at a gain may create tax consequences. Transactions can also involve trading costs or spreads.

That's why investors shouldn't automatically sell investments every time their allocation moves slightly away from target.

One alternative is to use new contributions to increase underweight positions.

For example, if stocks have become overweight and bonds are underweight, an investor adding new money could direct some or all of that contribution toward bonds instead of selling stocks immediately.

For taxable accounts, investors should consider their applicable tax rules and seek professional tax advice when necessary.

For most long-term investors, more frequent isn't automatically better.

Checking and changing your portfolio every few weeks can encourage unnecessary trading and make it easier to react emotionally to short-term market movements.

A more disciplined approach could be:

Review periodically → Check for meaningful drift → Rebalance according to predetermined rules.

Your circumstances may also justify a portfolio review outside the normal schedule.

Consider reviewing your allocation when there is a major change in:

These changes can sometimes matter more than short-term market movements.

Rebalancing isn't only about stocks versus bonds.

It can also help maintain diversification within the stock portion of a portfolio.

For example, suppose an investor initially has:

If technology stocks dramatically outperform the rest of the portfolio, the investor could eventually become much more concentrated in technology than originally intended.

That means rebalancing may involve reviewing:

This is particularly important because simply owning more stocks doesn't automatically create better diversification.

For investors who want a straightforward process, the following framework can work as a starting point:

1. Set a target allocation.
Decide how you want your portfolio distributed based on your goals, time horizon, and risk tolerance.

2. Establish a review schedule.
For example, review the portfolio once or twice a year.

3. Set reasonable drift thresholds.
Decide how far an allocation can move before you consider rebalancing.

4. Check the entire portfolio.
Don't look only at one stock or asset class. Consider the overall exposure.

5. Use new contributions when practical.
This can sometimes reduce the need to sell existing investments.

6. Consider taxes and costs before trading.
A rebalance should improve portfolio structure without creating unnecessary expenses.

7. Follow the rules instead of the headlines.
The purpose of having a rebalancing strategy is to reduce emotional decision-making.

Portfolio rebalancing is less about finding the next winning investment and more about keeping your portfolio aligned with the strategy you already chose.

Markets will naturally cause some investments to grow faster than others. Without a rebalancing process, those differences can gradually change your portfolio's risk and concentration.

For long-term investors, a simple combination of periodic reviews, predefined thresholds, thoughtful position sizing, and tax- and cost-aware decisions can make rebalancing more systematic.

The goal isn't to constantly adjust your portfolio.

It's to make sure that when you do adjust it, you're doing so because your investment plan says it's time - not because the latest market headline made you nervous.