Get Back in Balance: Why Rebalancing Your Portfolio Matters
By: Loot Lasso / Last Edited: 3/12/2025
What Is Rebalancing?
Rebalancing your portfolio means buying and/or selling investments to bring your current asset allocation back in line with your desired allocation.
Key Terms to Know:
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Portfolio: This is the total of all your investments. A portfolio may include stocks, bonds, mutual funds, real estate, digital assets, cash, and more.
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Allocation: The proportion of each asset class in your portfolio. For example, if you have $75 in stocks and $25 in bonds, your portfolio allocation is 75% stocks and 25% bonds. [Learn more here.]
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Desired Allocation: Your target mix of investments based on your risk tolerance, financial goals, and time horizon. This may differ from your current allocation. [Learn more here.]
Why Is Rebalancing Important?
Rebalancing serves two key purposes:
- Keeps your portfolio aligned with your risk tolerance and investment goals
- Encourages a disciplined approach of “buying low and selling high”
1. Staying Aligned with Your Risk Tolerance
Over time, different assets perform differently—some grow faster than others. When one part of your portfolio outperforms, it can throw off your target allocation and expose you to more (or less) risk than you intended.
Example:
Let’s say you started 2019 with a balanced portfolio:
- 50% stocks,
- 50% bonds.
By the end of the year, U.S. stock funds gained ~30%, while bond funds gained ~10%. Without making any changes, your portfolio would now be closer to 55% stocks and 45% bonds—a more aggressive position than your original plan. Rebalancing would bring it back to 50/50, keeping your risk level consistent with your goals.
2. “Buy Low, Sell High”—Automatically
Rebalancing has a built-in benefit: it encourages you to sell high-performing assets (which may now be overvalued) and buy underperforming ones (which may be undervalued). This disciplined approach helps avoid emotional decision-making and reinforces a long-term investment strategy.
Loot Lasso Portfolio Rebalancing Calculator
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