REBALANCING

Summary

Rebalancing is the process of buying and selling investments in your portfolio to bring it back to your original target allocation. For example, if you wanted 60% stocks and 40% bonds, but market changes made it 70% stocks and 30% bonds, rebalancing would involve selling some stocks and buying bonds to get back to 60/40. This helps maintain your desired risk level and prevents any single investment type from becoming too dominant in your portfolio.

Usage Context

Understanding rebalancing is crucial when learning about portfolio management, long-term investing strategies, risk management, and maintaining disciplined investment approaches throughout market cycles.

Common Confusions

• Thinking rebalancing means changing your investment strategy rather than maintaining it
• Confusing rebalancing with market timing or trying to predict market movements
• Believing that rebalancing always improves returns when its main purpose is risk management
• Not understanding that rebalancing involves selling winners and buying losers