Rebalancing Without Stress

What rebalancing actually does

Rebalancing is just the process of nudging your portfolio back to its target mix when markets move. It is not a prediction tool or a way to “outsmart” the market.

• Target mix: for example 60% stocks, 40% bonds, or any allocation that fits your risk.
• Drift: after strong stock markets, you might end up 70% stocks / 30% bonds without doing anything.
• Rebalance: you sell a bit of what outperformed and buy what lagged to move back toward 60/40.
• Goal: keep risk roughly constant over time, not guess short-term moves.

Why rebalancing helps long-term investors

If you never rebalance, your portfolio can quietly morph into something much riskier than you signed up for.

• Risk control: rebalancing stops stocks from creeping from 60% to 80%+ and turning normal drawdowns into disasters for you.
• Behavior: knowing you have a rule makes it easier to ignore daily noise. “I’ll check at my next rebalance date.”
• Buy low, sell high (mechanically): you automatically trim recent winners and top up the laggards instead of chasing them.
• Consistency: a simple rule is easier to stick with than constant gut-feel decisions.

Two simple rebalancing rules

You do not need complex algorithms. Most people are fine with one of these two.

• Calendar rule: choose one date each year (or twice a year). On that date, compare your actual weights to your targets and rebalance if they are noticeably off.
• Band rule: rebalance only when an asset class drifts more than a set band, for example ±5 percentage points from target (60% stocks rebalances if it moves below 55% or above 65%).
• Hybrid: check once per year and only trade if bands are breached. If not, do nothing.

The rebalancing study on this site shows how simple annual rules behave in data.

How to implement rebalancing without stress

• Write your target on one page: for example “70% global stock index, 30% bond index” with ticker symbols.
• Pick your rule: annual on a fixed month, or ±5–10% bands, or both.
• Automate contributions first: send new money toward underweight assets so you need fewer trades.
• Use limit orders sparingly: for broad index funds and ETFs, simple market orders during normal hours are usually fine.
• Keep a log: jot down the date, target weights, and what you did. This stops you from tinkering randomly.

Common rebalancing mistakes to avoid

• Rebalancing constantly: if you rebalance every week, you are just trading noise and creating costs and tax events.
• Using “feelings” instead of rules: waiting to rebalance until “things feel safer” defeats the whole purpose.
• Changing targets every year: if your risk tolerance hasn’t truly changed, keep the same allocation and let it work.
• Ignoring taxes and fees: in taxable accounts, tilt toward using new contributions and dividends to rebalance before selling positions.