Portfolio · Investing Glossary
What Is Rebalancing?
Restoring your portfolio to its target allocation after market movements.
The Full Definition
Rebalancing means periodically buying or selling assets to restore your portfolio to its intended allocation. If your target is 80% stocks and 20% bonds, and a strong stock market run pushes you to 90/10, rebalancing brings you back. It forces the discipline of selling what's become expensive (relative to your plan) and buying what's become cheap — the opposite of what emotions push you to do.
Real-World Example
At the start of the year your portfolio is 80% stocks / 20% bonds. By year-end, strong stock performance has shifted it to 88% stocks / 12% bonds. Rebalancing means selling some stocks and buying bonds to return to 80/20 — effectively locking in some gains.