Every investor wants to buy low and sell high. What if we told you there is a disciplined process for doing just that, and staying on track toward your personal goals while you're at it? There is, and it's called rebalancing.
Here's how it works. Imagine it's your first day as an investor. As you create your new portfolio, you've got a plan to put a portion of your assets in stock, a portion in bonds, and so on. Assigning these weights is called asset allocation.
Then time passes. Because markets don't move in tandem, your investments stray from the original allocations. Even if you've done nothing, market shifts mean you're now taking on higher or lower risks and expected rewards than you intended. Unless your plans have changed, your portfolio needs some attention. This is what rebalancing is for: to shift your assets back to their intended, long-term allocations.