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What does it mean to rebalance a portfolio?

Rebalancing an investment or retirement portfolio, which typically includes securities and commodities, is what investors do to reset their allocated asset mix back to its original state.

Over time, some assets in a portfolio will grow faster than others. Rebalancing helps ensure that an investor’s portfolio does not overweight into a particular asset category. For example, an investor may want to maintain exposure to stocks in a portfolio at 50%, but see that rise to 75% due to market gains. To reestablish the desired asset allocation mix, the investor will either need to sell some stock or invest in other asset classes.

Here are three ways to consider rebalancing:

  • Sell investments where holdings are over weighted and use the proceeds to buy investments for under weighted asset classes
  • Buy new investments for under weighted asset categories
  • Alter any ongoing contributions to reset the balance over time

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What about diversification?

Talk to your financial advisor.

Got questions? You can learn more here.

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