How to Rebalance Your Portfolio to Stay on Track

Tranmautritam/ Pexels | Balance is the key to success in life and investing
Investing can be rewarding, but the journey to success is not without its twists and turns. Maintaining a well-balanced portfolio is one of the most crucial aspects of managing your investments. Over time, as different assets perform differently, your portfolio can drift away from your original investment strategy. This is where rebalancing comes into play.
Today, we will explore the importance of portfolio rebalancing and how it can help you stay on track toward your financial goals.
Portfolio rebalancing is realigning your investments to maintain your desired asset allocation. When setting up your investment portfolio, you allocate a certain percentage of your funds to different asset classes, such as stocks, bonds, real estate, and cash.
This allocation is based on your financial goals, risk tolerance, and investment horizon. However, as time goes by, the values of these assets can fluctuate, causing your portfolio to deviate from your original allocation.
For example, let’s say you initially allocated two-thirds of your portfolio to stocks and the remaining to bonds. If stocks perform well and increase in value, they might make up 70% of your portfolio, while bonds have dwindled to 30%. This shift can expose you to more risk than initially intended, potentially jeopardizing your financial goals.
Risk Management
Rebalancing helps you manage risk effectively. By bringing your portfolio back in line with your original allocation, you can control the level of risk you’re exposed to. This means you won’t be overexposed to one asset class that might suffer a downturn.
Maintain Your Investment Strategy
Rebalancing is a strategy that helps your financial moves align with your long-term goals. If your strategy is to have a balanced portfolio, rebalancing is crucial to preserving that balance.
Lock in Gains

Rebalancing allows you to sell assets that have performed well and reallocate the profits to underperforming assets. This “sell high, buy low” approach helps you lock in gains and potentially benefit from the future growth of undervalued assets.
Discipline
Regularly rebalancing your portfolio instills discipline in your investment approach. It prevents you from making impulsive decisions based on market fluctuations and emotions.
The timing of portfolio rebalancing can vary depending on your investment strategy and personal preferences. Here are a few common approaches: