Rebalancing

AAA

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.

INVESTOPEDIA EXPLAINS'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.

RELATED TERMS
  1. Market Portfolio

    A theoretical bundle of investments that includes every type ...
  2. Constant Ratio Plan

    An asset allocation strategy in which assets are assigned a fixed ...
  3. Risk Tolerance

    The degree of variability in investment returns that an individual ...
  4. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  5. Asset Allocation

    An investment strategy that aims to balance risk and reward by ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and ...
Related Articles
  1. Investing Basics

    Solutions For Concentrated Positions

    Investopedia explains various tactics for divesting your overexposure to any one stock.
  2. Investing Basics

    Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return is any investor's prime goal. The right mix of securities is the key to achieving your optimal asset allocation.
  3. Options & Futures

    6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.
  4. Mutual Funds & ETFs

    4 Steps To Building A Profitable Portfolio

    This is a step-by-step approach to determining, achieving and maintaining optimal asset allocation.
  5. Investing Basics

    Removing The Barriers To Successful Investing

    Learn how to stop using emotion and bad habits to make your stock picks.
  6. Mutual Funds & ETFs

    8 Reasons To Dump A Mutual Fund

    Buy and hold is not forever. Find out when it pays to sell your fund and move on.
  7. Mutual Funds & ETFs

    Mutual Fund Tune-Up Delivers High-Powered Performance

    Rebalancing your portfolio will protect you from risk and ensure that your investments are performing at their best.
  8. Options & Futures

    5 Ways Winter Can Help Your Portfolio

    Use the winter downtime to improve your investing knowledge and technique.
  9. Retirement

    Are You A Disciplined Investor?

    Don't let "financial porn" steer you away from a sensible, long-term approach to investing.
  10. Mutual Funds & ETFs

    Permanent Portfolio Locks In Long-Term Profits

    Harry Browne believes his "permanent portfolio" theory is the ideal long-term investing strategy.
RELATED FAQS
  1. Is the banking sector subject to any seasonal trends?

    The banking industry, including retail and investment banks, is subject to seasonal trends. Seasonality is most commonly ... Read Full Answer >>
  2. How can I calculate the tracking error of an ETF or indexed mutual fund?

    Calculate the tracking error of an indexed exchange-trade fund (ETF) or mutual fund by doing a standard deviation percentage ... Read Full Answer >>
  3. What option strategies can I use to earn additional income when investing in the ...

    A risk-averse investor should build his retirement portfolio by putting together a well-diversified portfolio and then regularly ... Read Full Answer >>
  4. What level of correlation among investments will guarantee market returns but have ...

    The efficient frontier set forth by modern portfolio theory (MPT) can provide an estimate of an optimal portfolio that allows ... Read Full Answer >>
  5. How does systematic risk influence stock prices?

    Systematic risk can negatively impact stock prices during times of high volatility and market risk. Systematic risk refers ... Read Full Answer >>
  6. What is the difference between rebalancing and diversifying a portfolio?

    There are a number of tools used to maintain the performance of an investment account, including rebalancing and diversifying. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!