Rebalancing is selling overweighted positions and buying underweighted ones to restore your target asset allocation. If your target is 70% stocks / 30% bonds and a bull market drives you to 80/20, rebalancing forces you to sell stocks high and buy bonds. Most people skip rebalancing because selling winners feels bad — but this discipline is what makes asset allocation work. Practical methods: rebalance annually on a fixed date, or whenever any asset class drifts 5%+ from target. Within tax-advantaged accounts, rebalance freely; in taxable accounts, prefer directing new contributions to underweighted assets to avoid taxable gains.
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Rebalancing
August 22, 2026 · Aditya Gupta
Investing
Related terms
401(k)
A 401(k) is an employer-sponsored retirement plan where employees contribute pre-tax salary that grows tax-deferred until withdrawal. The…
Active Management
Active management is the attempt to outperform a benchmark through stock selection, sector rotation, market timing, or any…
Alpha
Alpha is excess return relative to a benchmark, adjusted for risk (beta). Positive alpha means an investment outperformed…
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Asset allocation is the percentage split of your portfolio across asset classes — typically stocks, bonds, and cash,…
Backdoor Roth
The Backdoor Roth is a strategy for high earners (above the Roth IRA income limit) to contribute to…
Beta
Beta measures a stock's volatility relative to the overall market (S&P 500 = beta of 1). Stocks with…
