The Importance of Portfolio Rebalancing for Long-Term Investment Success

*The Importance of Portfolio Rebalancing for Long-Term Investment Success*

Portfolio rebalancing is a crucial strategy for maintaining the desired risk and return profile of an investment portfolio over time. As market conditions change, the value of different assets within a portfolio fluctuates, causing the original asset allocation to shift. Rebalancing involves periodically adjusting the portfolio by buying or selling assets to restore the target allocation.

Without rebalancing, investors may unknowingly take on more risk than intended if, for example, equities outperform and dominate the portfolio, or conversely, become too conservative if bonds take up a larger share. By rebalancing, investors can systematically “buy low and sell high,” potentially enhancing returns and reducing risk.

The frequency of rebalancing varies depending on individual goals, market volatility, and costs associated with trading. Some investors choose calendar-based schedules (e.g., quarterly or annually), while others rebalance only when allocations deviate beyond a set threshold.

Ultimately, portfolio rebalancing is a disciplined approach that helps investors stay aligned with their financial objectives and manage risk effectively, fostering long-term investment success.