Glossary · Investing and personal finance
Rebalancing
Rebalancing is bringing a portfolio back to its target mix by selling some of what has grown and buying what has lagged behind.
Also called: portfolio rebalancing, rebalance
Share of the portfolio, Oct 2026. Rebalanced every January it stayed between 46% and 69%.
In plain words
You decide to keep 60% of your savings in stocks and 40% in bonds. After a great year for stocks the mix is 65/35; a few more and it is 75/25. You now own a riskier portfolio than the one you chose. Rebalancing means selling some stocks and buying bonds to get back to 60/40.
It feels backwards, because you sell what has done well and buy what has done badly. That is the point: it keeps your risk where you set it, and it makes you buy low and sell high by rule, not by gut feeling.
Left alone since Jan 1950, a 60/40 portfolio of US stocks and 10-year Treasuries would now be 99% stocks.
Example
Back to 60/40
- Start: $100,000 = $60,000 in stocks + $40,000 in bonds.
- Stocks gain 25% and bonds 2%: $75,000 + $40,800 = $115,800. Stocks are now 64.8% of the total.
- The target for stocks is 60% of $115,800 = $69,480, so sell $5,520 of stocks.
- Put the $5,520 into bonds: $69,480 + $46,320 = $115,800, back to 60/40.
Inside a retirement account this costs little. Elsewhere, selling can trigger capital gains tax, so many people rebalance by sending new savings to the part that is behind.
One level deeper
There are two common methods: by the calendar (once a year, say every January) and by threshold (whenever a part drifts more than, say, 5 percentage points from its target). Studies find that the method matters less than doing it at all, and that rebalancing very often mostly adds costs.
Rebalancing is about risk, not return. With stocks usually growing faster than bonds, a portfolio left alone tends to end up mostly in stocks, so it earns more in good times and falls harder in bad ones. From Jan 1950, the untouched 60/40 portfolio returned 10.9% a year with a deepest fall of −47%. Rebalanced every January, it returned 9.4% a year with a deepest fall of −25%.
When assets take turns leading, rebalancing can also add a little return, because it keeps buying whatever has just fallen. This rebalancing bonus is largest for assets that swing a lot and do not move together.
A 60/40 portfolio since 1950: rebalanced or left alone
The share of the portfolio in stocks, month by month. Left alone, it drifted up as stocks outgrew bonds, dropping back only in the big crashes, and reached 99% by Oct 2026. Rebalanced every January, it zigzags around 60%.
The numbers behind the chart
| Date | Never rebalanced | Rebalanced every January |
|---|---|---|
| Jan 1950 | 60% | 60% |
| Dec 1950 | 65% | 65% |
| Dec 1960 | 87% | 58% |
| Dec 1970 | 92% | 57% |
| Dec 1980 | 94% | 66% |
| Dec 1990 | 94% | 58% |
| Dec 2000 | 97% | 55% |
| Dec 2010 | 96% | 61% |
| Dec 2020 | 98% | 61% |
| Dec 2022 | 99% | 60% |
| Dec 2023 | 99% | 64% |
| Dec 2024 | 99% | 65% |
| Dec 2025 | 99% | 62% |
| Oct 2026 | 99% | 64% |
Why it matters
Without it, a portfolio slowly turns into a different, riskier one than you chose, often just in time for a crash.
It is a built-in discipline: a rule that buys after falls and trims after rises, the opposite of what fear and greed suggest.
Balanced and target-date funds do it automatically, which is a large part of what you pay them for.
A common mistake
Myth: Rebalancing means selling your winners, so it lowers returns.
In fact: It trims the asset that has grown faster, so in a long rise of stocks it can earn a little less. In exchange the portfolio’s risk stays where you set it: from Jan 1950, the deepest fall was −25% rebalanced, against −47% left alone.
Questions people ask
How often do people rebalance?
Once a year is the most common rule, or whenever an asset drifts about 5 percentage points from its target. Rebalancing more often adds trading costs and taxes without much benefit.
Does rebalancing trigger taxes?
Selling at a gain in an ordinary taxable account does. Inside retirement accounts like a 401(k) or an IRA it does not. Sending new savings or dividends to the part that is below its target rebalances without selling anything.
What is the rebalancing bonus?
The extra return that can come from regularly buying an asset after it falls and selling after it rises. It shows up when assets swing a lot and take turns; for a plain stock/bond mix it is usually small.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US 10-year Treasury bonds, total return index: Robert J. Shiller, Online Data (shillerdata.com), ie_data.xls, sheet "Data": "Long Interest Rate GS10", checked against "Monthly Total Bond Returns" and "Real Total Bond Returns".
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- This page explains a term. It is not investment advice.