Staying on Track: The Role of Rebalancing & Risk Management

Portfolio rebalancing is the process of adjusting your investments to maintain your desired asset allocation. Over time, market movements can cause your portfolio to drift from its original mix—potentially increasing risk or reducing returns. Rebalancing helps bring it back in line with your goals and risk tolerance.

A common strategy is to sell assets that have grown beyond their target percentage and reinvest in those that have lagged. This disciplined approach encourages buying low and selling high. However, it’s important to consider whether underperformance is temporary or a sign of deeper issues.

Taxes can complicate rebalancing, especially in taxable accounts. To minimize tax impact, investors often rebalance within retirement accounts or use new contributions to correct imbalances without triggering capital gains.

Risk management complements rebalancing by ensuring diversification across asset classes and geographies. A well-diversified portfolio can reduce volatility and improve long-term performance, especially in uncertain markets.

In short, regular rebalancing and thoughtful risk management are key to staying on course. They help investors adapt to market changes while keeping their financial plans intact.