Rebalancing is the periodic adjustment of a portfolio to restore its originally defined allocation across asset classes.
Due to market movements, the weights of individual positions change over time: assets that have performed strongly increase in proportion, while weaker assets become underweighted.
Rebalancing restores the intended risk profile and forces an investor to act counter-cyclically—reducing winners and increasing underperforming positions.
In practice, rebalancing can occur at fixed intervals (e.g. quarterly) or based on predefined thresholds.
It is a core tool in wealth management and institutional investing, as it enforces discipline in maintaining strategic asset allocation and can stabilize a portfolio’s long-term risk-return profile.
