Rebalancing your portfolio
Guide Summary
- Rebalancing is the process of realigning your portfolio to match your original asset allocation.
- It ensures your investments continue to reflect your goals, risk tolerance, time horizon and capacity for loss.
- Rebalancing can be done by selling assets, buying more of others, or adding new funds strategically.
What is portfolio rebalancing?
Rebalancing a portfolio means adjusting your investments back to their original mix of assets in line with your goal, risk tolerance, capacity for loss and time horizon when market changes cause them to drift.
Over time, some investments grow faster than others, which can leave you with more risk (or less) than you intended. Rebalancing helps keep your portfolio aligned with your goals, risk tolerance and capacity for loss.
How to rebalance your portfolio
Start by asking yourself a few key questions:
- Am I still comfortable with my original asset allocation?
- Has my financial situation or goals changed since I set it?
- Is my portfolio more aggressive or more conservative than I’d like it to be?
- Has my risk tolerance or capacity for loss changed?
If the answers suggest your portfolio has drifted away from where you want it to be, it’s time to consider rebalancing.
Simple steps to rebalance your portfolio
There are a few different approaches investors use:
- Selling and buying — Selling some of the investments that have grown beyond your target and using the proceeds to buy more of the underweighted assets.
- Adding new funds — Directing new contributions into areas of your portfolio that are underrepresented, rather than selling anything.
- Automatic rebalancing — Some platforms and funds offer built-in rebalancing, adjusting your portfolio for you on a set schedule.
Which method you choose depends on your investment style, account type, and comfort level with making changes.
See our full guide on portfolio management.
How often should I rebalance my portfolio?
There’s no strict rule, but generally checking your portfolio consistently, once or twice a year or if your circumstances have changed. Some investors prefer a “threshold” method, where they only rebalance if allocations drift by more than 5-10% from their targets.
The key is consistency, regular reviews and not overreacting to every short-term market movement.
Advantages of portfolio rebalancing
- It keeps your portfolio aligned with your goals and risk profile.
- Improves diversification over time.
- Reduces the chance of being overexposed to one asset or sector.
- Helps manage volatility and risk.
- Supports long-term investing discipline.
Disadvantages of portfolio rebalancing
- May reduce exposure to sectors that are currently performing well.
- Could increase exposure to underperforming assets.
- May trigger taxes or transaction fees, depending on your account type.
- Requires time, effort, and a clear understanding of your goals.
Rebalancing your portfolio summary
Rebalancing is a practical way to keep your portfolio on track as markets shift. By comparing your current allocation to your target, making adjustments where necessary, and sticking to a consistent review schedule, you can manage risk and stay aligned with your long-term goals.
Next in this series: Pound-cost averaging — how investing small amounts regularly can reduce risk and smooth out returns.
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Chip does not offer financial advice and this should not be considered as a personal recommendation.
