What is rebalancing?

By
7 years ago

Rebalancing is the process of getting your asset allocation back to its intended weighting or percentages in the different asset classes held in the portfolio. For example, If you’re “target mix” is 75% Stocks and 25% bonds, and the stock market grows faster than the bond market, your stock/bond proportion changes, for example to 80% stocks and 20% bonds. If a portfolio is not periodically rebalanced back to its “strategic target” and is allowed to stray significantly, the portfolio’s volatility risk increases. As a result, rebalancing is an important risk-control mechanism. WealthStep monitors client portfolios and conducts rebalancing periodically (annually, on average).

This article is for informational and educational purposes. Any hyperlinks to third party websites are not endorsements and outside content is believed to be reliable but has not been independently verified. Consult an objective financial advisor for guidance as appropriate.