Not long ago, I wrote this column for TheStreetPro about portfolio rebalancing. That’s one of those topics that sounds arcane, but is actually a pretty basic tenet of investment management. 

After getting your investments organized, you might have assumed the hard part is over. Or the fun part, depending on how much you enjoy spreadsheets and tracking prformance. 

But in reality, this is where the real challenge starts: Resisting the urge to tinker.

Why Portfolio Rebalancing Matters

Maybe you really want to add a little more of what’s been working. A little less of what hasn’t. Maybe a hedge, maybe a flyer on that small-cap IPO that you’ve been reading about, maybe that ETF your group chat won’t shut up about. It all feels harmless. It rarely is.

What actually matters is far less exciting: Periodically bringing your portfolio back to what you intended it to be in the first place.

That’s rebalancing. It doesn’t predict markets. It doesn’t involve a hot take. 

And it will never make you feel clever at a dinner party. In fact, even financial planners know it’s not anything to boast about anymore, it’s so commonplace.

What rebalancing does is keep risk from quietly creeping into places you didn’t agree to.

In that column, I laid out the case that nothing really has to go drastically wrong if you don’t rebalance.

Drift Feels Harmless Until …

Every investment gained. But they didn’t gain equally, so the portfolio drifted. Stocks became a bigger slice of the pie, bonds a smaller one. The change can be gradual and easy to ignore, right up until markets remind you why risk matters.

And when does that happen? If you’re super unlucky, that outsized holding in stocks will tank just as you’re about to retire, or maybe early in retirement. Then you find yourself making withdrawals when stocks are lower than they were just a short time ago.

Ouch! 

That’s the thing about drift: it doesn’t feel dangerous while it’s happening. It just shows up later, usually at the worst possible time.

Risk Control Beats Clever Investing

Make no mistake: Rebalancing isn’t about boosting returns. 

Over long periods, it often means selling winners to buy laggards, which goes against every human instinct you have. 

But the goal isn’t to “win” the market. That’s the nonsense that traders pull, and it has nothing to do with playing the long game of generating retirement income. 

Rebalancing to keep your portfolio aligned with your life, especially if you’d like to stop working someday without being forced back because your risk got away from you.

Timing matters, too. Rebalancing on a rigid schedule can create unnecessary trading and tax headaches. Vanguard’s research suggests it’s better to rebalance when drift becomes meaningful, not just because the calendar flipped.

Buy The Stuff That’s Lagging

One way to accomplish rebalancing is through what’s called an “accumulation rebalance.” You can benefit from this approach in a taxable account, as you can keep your portfolio closer to its target allocation without selling, which can result in tax consequences.

Here’s how that works: Instead of selling stocks to buy bonds, or vice cersa, you would deploy new dollars into the purchase of lagging assets, which move everything back to the original allocation (or close to it). 

See how that works? You’re adding the stuff you were underweighted in.

This image from YCharts shows how that strategy would have looked when implemented between April 1996 and December 2024.

And one more real-world detail that often gets ignored: People add money to their portfolios. If you’re still accumulating, the easiest way to rebalance is often to aim new contributions at whatever’s underweight. No panic selling. No tax bill. Just easy peasy course correction.

Rebalancing isn’t flashy. It’s not supposed to be. It’s the financial equivalent of stretching, saving receipts, and wearing sunscreen, things you roll your eyes at until you realize they work.

And in retirement investing, boring done well beats clever every time.