What is portfolio rebalancing?

Rebalancing means periodically adjusting your portfolio back to your target asset allocation. For example, if you target 70% stocks and 30% bonds, and stocks rally so the mix becomes 80/20, you sell some stocks and buy bonds to restore 70/30. Rebalancing enforces buy-low/sell-high discipline and keeps your risk level in line with your goals. Most investors rebalance annually or when allocations drift by 5%+.