Market movement changes a portfolio's mix even when the investor does nothing. Rebalancing returns the allocation to the percentages chosen for the goal and time horizon.
Use a rule
A calendar or percentage band makes the decision repeatable instead of emotional.
New contributions can help
Directing deposits toward underweight assets may reduce the need to sell.
Taxes and fees still count
Trades in taxable accounts can realize gains, so location and transaction costs matter.
Sources
- U.S. Securities and Exchange Commission, Asset Allocation and Rebalancing.