Definition
Restoring your portfolio to its target allocation, usually once a year, by trimming what grew and adding to what lagged. It quietly enforces buying low and selling high.
Why it matters
Without rebalancing, a portfolio slowly becomes whatever ran up most, which is usually its riskiest version right before a downturn. One calendar reminder a year keeps risk where you chose it.
Example
A 80/20 target drifts to 87/13 after a big stock year. The investor sells 7 points of stock funds into bonds, mechanically taking profit and restoring the risk level they actually signed up for.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.