How often should I rebalance?

For most long-term portfolios, annually or on a 5-point drift threshold is enough. More frequent rebalancing adds cost without a reliable benefit.

Does rebalancing improve returns?

Sometimes, in range-bound markets. Its dependable benefit is keeping the portfolio's risk at the level you chose.

Can I rebalance without selling?

Yes — direct new deposits into the underweight assets until the weights come back into line. This avoids both trading costs and tax events.

What Is Portfolio Rebalancing? Methods, Timing and Costs

Why allocations drift

Assets grow at different rates, so a portfolio left alone slowly becomes whatever performed best. That is not a neutral outcome: the winner is now the largest position precisely when it is most expensive, and your risk profile has changed without any decision being made.

Example

A 60/40 split between equities and bonds after a strong equity year can drift to 72/28. You now hold materially more risk than you signed up for.

The two common methods

Threshold methods respond to what actually happened rather than to the calendar, and the hybrid version usually strikes the best balance between discipline and trading costs.

Calendar — rebalance on a fixed schedule, e.g. quarterly or annually
Threshold — rebalance whenever a holding drifts more than a set percentage from target, e.g. ±5 points
Hybrid — check on a schedule, act only if a threshold is breached

What it costs

Every rebalance involves spreads, fees and — outside a tax-sheltered account — potentially a taxable gain. Rebalancing too often converts a risk-control tool into a cost centre. Where possible, rebalance with new contributions by directing them to the underweight assets instead of selling anything.

What it is not

Rebalancing is not a return-maximising strategy. In a long trend it will underperform simply holding the winner, and that is the intended behaviour: it is buying insurance against concentration, and insurance has a price.

What is portfolio rebalancing?