Financial Terms / Q - R / Rebalancing

Rebalancing

Rebalancing is a crucial element of allocating the different assets in your portfolio. Factors like age, number of dependents, time horizon, risk tolerance, etc., determine how you allocate your investments to securities like stocks, bonds, commodities, etc.

These percentages change over time due to booms and busts in the prices of different assets. Rebalancing is the process by which you reset the allocations of the various assets back to your specified target allocation. It is done periodically after significant moves in your underlying assets cause the allocations to stray away from their targets.