Why rebalance
Start at 60% stocks and 40% bonds, and a bull market can push you to 70% stocks—more risk than you signed up for. Rebalancing trims winners and adds to laggards, restoring your asset allocation. It's a built-in "sell high, buy low" discipline.
When and how
Calendar rebalancing happens on a set date, like once a year; threshold rebalancing kicks in when an asset drifts more than, say, 5 percentage points. Vanguard found rebalancing more often than annually mostly added costs. Direct new contributions to underweight assets, and rebalance inside 401(k)s or IRAs to avoid capital gains taxes.
FAQ
- Does rebalancing boost returns?
- Not always—the main goal is controlling risk.
- How often should I rebalance?
- Once a year or at 5% drift works for most people.
Sources reviewed: 2026-10-26
References
- Vanguard Research. (2019). Getting back on track: A guide to smart rebalancing.
- Bernstein, W. J. (2010). The Investor's Manifesto. Wiley.