Rebalancing

Investing glossary · Practice and portfolio habits

Adjusting a portfolio back to its target weights after market moves have shifted them.

Definition

Rebalancing means trading to bring a portfolio back to its intended mix. If you target 60% stocks and 40% bonds and stocks rally, you end up with more risk than you planned. Rebalancing sells some of the winners and buys more of the laggards, to restore the original risk level.

It can be done on a schedule (such as once a year) or when weights drift past a threshold (such as 5 percentage points). Rebalancing keeps risk under control, but it has costs: trading fees, and taxes in some accounts. It does not necessarily raise returns; its main job is to keep your risk where you chose it.

Worked example

Illustrative numbers

You start with $100,000: $60,000 in stocks and $40,000 in bonds (60/40). Stocks rise 20% and bonds stay flat, so you hold $72,000 and $40,000, a total of $112,000. Stocks are now 64.3% of the portfolio and bonds 35.7%. To go back to 60/40 you sell about $4,800 of stocks and buy bonds with it.

The trade restores the risk you chose; without it, the portfolio would keep drifting toward whatever has been winning.

How ATLAS uses it

ATLAS shows the weights and risk of your portfolio, so you can see when it has drifted from the mix you intended.

Frequently asked questions

How often should I rebalance?

Common choices are once a year or when an asset class drifts 5 points from its target. Frequent rebalancing raises costs without clear benefit.

Does rebalancing increase returns?

Not reliably. Its main benefit is controlling risk, not boosting returns.

Related terms

Put the idea to work on your own stocks

Open any company in ATLAS to see its fair value, its odds of rising and its risk numbers side by side.

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Not investment advice. ATLAS estimates are produced by statistical models from public data; they can be wrong and past performance does not predict future results. Consider your own situation before investing. Disclaimer