You set a sensible mix — say 60% stocks, 40% safer assets. A year later, after a good run, it's quietly become 75% stocks. Without doing anything, you're now taking far more risk than you chose. The fix is a simple, underrated habit: rebalancing. This is for learning only.
Why portfolios drift
Different holdings grow at different rates. Your winners swell and take up an ever-bigger share of the portfolio, while laggards shrink. The result is drift: your actual mix wanders away from your intended one, usually toward more risk, right before the cycle turns.
What rebalancing does
Rebalancing means periodically trimming what has grown too large and topping up what has shrunk, to bring the portfolio back to its target weights. Quietly, it forces the hardest discipline in investing — sell a bit of what's expensive, buy a bit of what's cheap — without you having to predict anything.
How often?
- On a calendar: once or twice a year is enough for most people.
- On a threshold: rebalance only when a holding drifts more than, say, 5% from its target.
Don't overdo it — rebalancing too often racks up costs and taxes for little benefit. The goal is to control risk, not to tinker.
In a rule-based portfolio it's automatic
A systematic portfolio rebalances by design: positions are sized by rule, and as names enter and exit, weights are reset mechanically. You get the discipline without having to summon the willpower each time.
Rebalancing pairs naturally with position sizing and asset allocation — together they keep risk where you intended. Our Model Portfolio resets weights by rule, not by emotion.
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