What is rebalancing?
Rebalancing in finance occurs when one adjusts their holdings back to the portfolio’s goal or, possibly, beginning asset weights. For example, the goal may be to have 20% of one’s portfolio in a particular stock. Due to the different fluctuations in values of various holdings over time, the stock may change and become 25% of one’s portfolio due to better performance comparably. Now, the portfolio may need to be rebalanced so this holding will again be 20% of the portfolio along with the other asset weights at their original goals as well.
How Often Should One Rebalance?
The answer to this is that it depends on each individual’s situation. Monthly, quarterly or yearly are common with equity portfolios.