DEFINITION of 'Rebalancing'

The process of realigning the weightings of one's portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.

BREAKING DOWN 'Rebalancing'

For example, say your original target asset allocation was 50% stocks and 50% bonds. If your stocks performed well during the period, it could have increased the stock weighting of your portfolio to 70%. You may then decide to sell some of your stocks and buy bonds to get it back to your original target allocation of 50/50.

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