Rebalancing: Keeping Your Allocation From Drifting
Rebalancing is the discipline of selling what has done well. It never feels right, which is why it works.
At a glance
Figures checked 1 Sep 2026
Risk level
Rebalancing controls risk drift rather than boosting return
Tax treatment
Rebalance inside tax-advantaged accounts first to avoid realising gains
What to take away
- Annual or 5-percentage-point band rebalancing both work; consistency matters more than the rule.
- Rebalance with new contributions before selling anything.
- Do the selling inside IRAs and 401(k)s where it creates no tax.
Left alone, a 70/30 portfolio in a long bull market becomes an 85/15 portfolio — carrying more risk than you chose, just as valuations are highest. Rebalancing returns it to target.
Two workable rules
- Calendar: check once a year on a fixed date and reset to target.
- Bands: reset whenever an asset class drifts more than five percentage points from target.
Directing new contributions to the underweight asset does most of the work without any selling, which is the cheapest form of rebalancing available.
Common questions
Not reliably. Its job is controlling risk, and any return effect is secondary.