Simply put, rebalancing is the process of realigning the weighting of your portfolio’s assets. When you ‘rebalance your portfolio,’ you are periodically buying or selling assets to maintain your desired asset allocation levels.
There’s a great deal of literature that talks about the desired frequency of portfolio allocation. After all, rebalancing too infrequently puts your portfolio further away from its original risk-reward profile. But rebalancing too frequently increases transaction, fees, and tax payments.
In general, there are three common approaches to portfolio rebalancing. Any one of these rebalancing strategies is better than not rebalancing at all.
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