Rebalancing

Rebalancing means returning your asset weights to the plan after time has pulled them out of shape. Start at 60% stocks and 40% bonds, let stocks run to 75/25, and you sell stocks and buy bonds to restore 60/40.

Skip it and your risk quietly rises. Whatever has gone up takes a larger share on its own, leaving you with a more aggressive portfolio than you chose. When a downturn arrives, it hurts more than you expected.

Rebalancing also forces you to sell what has become expensive and buy what has become cheap. Because a rule decides rather than emotion, it blocks the common mistake of buying more into strength and selling into weakness.

Once a year is enough. Doing it often only adds fees and tax. Fixing a date, or acting only when a weight drifts more than five points from target, turns it into something you can actually carry out. If you are adding new money, you can rebalance by buying only the underweight asset instead of selling anything, which avoids the tax and fees that come with a sale.