Glossary · from the DESK dictionary
Rebalancing
Periodically adjusting a portfolio back to its originally planned asset allocation.
In plain words
If one asset class has grown faster than others, part of it is sold and shifted into the others to restore the target weighting.
In more detail
Rebalancing restores a portfolio's original target allocation after weights have drifted through differing performance. Its main purpose is risk control, not return enhancement: without rebalancing the share of the riskiest asset automatically grows over time. As a side effect the procedure acts countercyclically — selling what performed and buying what lagged.
Example
A 60/40 portfolio is left unadjusted for ten years and stands at 79/21. The investor effectively holds an entirely different risk profile than the one he chose — without ever having made a decision.
What it means for traders
An important disciplined tool in long-term portfolio management.
Common pitfalls
Rebalancing too frequently can create unnecessary transaction costs and tax events.
Related terms
Asset Allocation · Automatic Rebalancing · Index Rebalancing
From the DESK dictionary. For information only, not investment advice.
This is one page of many.
- The DESK dictionary explains more than 9,400 market terms like this one, in English and German – searchable, sorted by topic and difficulty, with favourites.
- Plus the Macro Terminal with more than 900 indicators per country, company pages and a weekly report.
Also open to read: Glossary A–Z · Free calculators · Weekly report archive
DESK is a research tool and not investment advice. Page generated: 2026-10-12.