It’s a quiet Saturday morning, coffee in hand, and you’re skimming your investment statements. At first glance, things look good – maybe too good. That 60/40 stock-to-bond mix you set up? It’s now closer to 75/25. You didn’t make any wild moves, didn’t chase trends, didn’t “go crypto” after too many espressos. But here you are, wondering if your portfolio got a little too ambitious while you were busy living your life.
This is what happens when markets move and you don’t. Over time, even a well-designed portfolio can drift from its original purpose. And while “more stocks” might look like more growth, it can also mean more risk – more than you might be comfortable with today.
That’s where rebalancing comes in. It’s not about chasing performance. It’s about making sure your portfolio still fits you: your goals, your timeline, your peace of mind.
Fine-tuning your investments and making small, thoughtful adjustments will keep your portfolio aligned with what you want your money to do for you. Especially in a market that’s been bouncing around like a pinball the last few years, rebalancing is how you get grounded, stay intentional, and keep your money working the way you want it to.
Getting started with portfolio rebalancing
What is rebalancing?
- Rebalancing is the process of adjusting your investment mix to realign with your original financial goals and risk tolerance.
Why should I rebalance my portfolio?
Because markets move. And without rebalancing, your portfolio can drift into a risk zone you didn’t sign up for. Rebalancing helps you:
- Maintain your risk level
- Lock in gains
- Stay disciplined
- Make smart use of market changes
How often should I rebalance my portfolio?
- That depends. Some people choose set intervals (like every 6 months). Others rebalance when their portfolio drifts a certain amount (like 5% off target). Automation can help, especially in retirement accounts.
How do I actually do it?
- Check your current allocation
- Compare it to your target mix
- Trim assets that have grown too much
- Add to assets that have fallen behind
- Watch for taxes in non-retirement accounts
What Does It Mean To Rebalance Your Portfolio?
Rebalancing your portfolio is the process of allocating the right mix of stocks, bonds, and other assets to meet your financial goals. Let’s say you want to keep your portfolio balanced at 60% stocks and 40% bonds. Hopefully this decision was made after a thoughtful analysis of your goals, risk tolerance, and time horizon. Maybe it was just a shot in the dark. But either way, it’s your target allocation.
But over time, the market shifts. Maybe stocks rally, and suddenly you’ve got 70% stocks without even touching anything. That’s where rebalancing comes in. You trim what’s grown too much and refill what’s fallen behind to bring things back to your target blend. Perhaps you’ve heard of “buy low, sell high” – rebalancing is an effort to do this following rules-based guidelines. When you follow the rules you’ve set for yourself, it means you are less likely to let your emotions and biases override your decisions.
You may at times discover that your risk tolerance has shifted, and that you need to rebalance your portfolio to match your new goals. Let’s say you originally aimed for 70% stocks and 30% bonds because you had 15 years until retirement and wanted higher growth potential. But after a hot market streak, your portfolio creeps up to 85% stocks. You may decide this new risk profile is worth it based on your new timelines and goals and adjust your assets accordingly.
The important thing here is to be honest with yourself about why you are changing your allocation. If your investment plan has changed, then it might make sense to stay put. But if your tolerance for risk hasn’t risen with the markets and you’re just afraid to sell while things are “hot,” you are going to be kicking yourself when the markets eventually drop.
Why Rebalance Your Portfolio
Markets can move fast and in unpredictable directions. One month, tech stocks skyrocket; the next, bonds bounce back or international markets stir things up. Over time, those movements shift the shape of your portfolio, often without you even noticing. Regularly rebalancing your portfolio helps keep it balanced in several important ways.
Maintain Risk Level
A balanced strategy could morph into something much more aggressive than you’re comfortable with if certain market conditions change. Rebalancing brings your risk level back in check.
Capitalize on Market Movements
Rebalancing naturally encourages a buy low, sell high mentality. You’re staying on top of market changes every time you make small, intentional adjustments to your portfolio.
Lock In Gains
When certain investments outperform, they start to take up more space in your portfolio than intended. Rebalancing allows you to trim those positions while they’re still ahead. It’s a way to turn growth on paper into actual progress toward your goals.
Stay Disciplined
Market fluctuations can test your patience. Rebalancing keeps you focused on the long game. It takes emotion out of the equation and replaces it with structure and clarity.
When To Rebalance A Portfolio
There’s no universal “right time” to rebalance your portfolio, but there are smart, structured ways to approach it. Your overall investment strategy, current market conditions, and your personal financial goals should all be considered to help determine your ideal frequency.
Many 401(k) providers now offer automatic rebalancing tools that let you set it and forget it. You can choose specific intervals (i.e. – monthly, quarterly, etc.) for the tools to review your portfolio for rebalancing opportunities. This kind of automation can help keep your strategy on track without needing your constant oversight.
Here are two of the most common methods investors use to determine when to rebalance:
Regular Interval Rebalancing
Some investors prefer a calendar-based approach. They rebalance at fixed intervals like every six months or once a year. This method is simple, predictable, and helps you stay close to your target allocation over time.
Threshold or Tolerance-Based Rebalancing
This approach kicks in only when your portfolio drifts a certain percentage away from your target mix (often 5% or more.) It’s more responsive to market movement but requires more frequent monitoring.
How To Rebalance A Portfolio: The Key Steps Taken
1. Assess Your Current Allocation.
Review your portfolio to see how your current asset mix compares to your target allocation.
2. Determine the Need for Rebalancing.
If your allocation has drifted significantly from your target, it may be time to rebalance.
3. Sell Overweighted Assets.
Reduce positions in assets that have grown larger than intended.
4. Buy Underweighted Assets.
Increase positions in assets that have become smaller than intended.
5. Consider Tax Implications.
Be mindful of potential tax consequences, especially in taxable accounts.
Bonus Tip:
If you’re already contributing regularly, or taking withdrawals, you can use that cash flow to subtly rebalance without selling at all.
Final Thoughts
Rebalancing is a moment to pause, reflect, and make sure your money is still doing what you want it to do. But figuring out those objectives is not always simple. Life shifts. Goals evolve. Risk tolerance doesn’t stay fixed.
A trusted advisor knows more than just your portfolio makeup. They know your priorities, your quirks, your vision for the future. They help you define what “balanced” really means for you, not just in percentages, but in purpose. They bring clarity when things get noisy, and perspective when the market tempts you to act on emotion.
When it comes time to rebalance, whether because of market swings or life changes, you won’t be reacting. You’ll be realigning. With purpose. With confidence. And with someone in your corner to help you stay on track.
At SK Wealth, we’ve been helping clients navigate the nuances of investment management for over 25 years. Our Integrated Financial Advantage™ process helps us form strategies that fit your real life and align with your unique goals. If you’re ready to make sure your portfolio is working with you (not just growing on autopilot), let’s talk.
Important Disclosure Information
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by SK Wealth Management, LLC [“SK Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, no portion of this discussion or information serves as the receipt of, or a substitute for, personalized investment advice from SK Wealth. contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from SK Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Neither SK Wealth’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if SK Wealth is engaged, or continues to be engaged, to provide investment advisory services. SK Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the SK Wealth’s current written disclosure Brochure and Form CRS discussing our advisory services and fees is available for review upon request or at https://skwealth.com/. Please Note: SK Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to SK Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a SK Wealth client, please contact SK Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
