Stock market basics · updated October 21, 2026
What is portfolio rebalancing and when should you do it
Rebalancing means bringing your portfolio back to the percentages you chose, after the market has shifted them. In practice, you sell a little of what rose a lot and buy what lagged behind.
How it works
You pick either a fixed date (once a year, say) or a threshold (when one part drifts more than 5 percentage points from its target). Then you work out how much to move. The cheapest way is to rebalance with new money: you put your monthly contributions into the part that fell behind, without selling anything.
Worked example
Your target is 60% stocks / 40% bonds, on a $20,000 portfolio. After a good year, stocks have grown to 70%.
Stocks are worth $14,000, the target is $12,000. You sell $2,000 of stocks and buy bonds.
Worth knowing
Rebalancing forces you to sell high and buy low, the exact opposite of what instinct tells you.
When rebalancing can fool you
Costs and taxes: every sale can bring fees and tax on the gain. Too often: rebalancing every month costs more than it helps.
Related terms
Learn it in the Academy
Questions about rebalancing
How often should you rebalance?
Once a year, or when one part drifts more than 5 points from its target. More often rarely helps.
Can you rebalance without selling?
Yes: put new money only into the part that is below target, until you are back at your percentages.
These explanations are for information only. They are not a recommendation to buy or sell.
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