Rebalancing Investments: Why, How and When

Rebalancing investments is one of the simplest, yet most powerful, habits for long-term investing. As markets rise and fall, the mix of stocks, bonds, and other assets in your portfolio drifts away from your intended risk level. Rebalancing resets that mix, helping you lock in gains, manage risk, and stay aligned with your long-term goals.

But if you’ve ever watched your account swing up and down, you know how tempting it can be to react—especially during market highs or lows. The question becomes: what should you actually do in those moments?

A recent Boldin poll revealed an important insight: people with a written retirement plan tend to handle volatility with more confidence. They don’t chase markets. They stick to their strategy. And the one consistent action they take? They rebalance when their allocations get out of line.

So, what is rebalancing and why is it a wise financial move? Keep reading to find out.

What is Rebalancing?

Rebalancing means adjusting your investments to bring your portfolio back in line with your chosen mix of stocks, bonds, and cash—also known as your asset allocation. Over time, market ups and downs shift those percentages, leaving you with more (or less) risk than you intended.

Example: Suppose your target allocation is 10% cash, 30% bonds, and 60% stocks. If stocks fall and now make up just 50% of your portfolio, you’d rebalance by selling some bonds and buying more stocks. That way, you return to your intended balance and keep your risk level steady.

When to rebalance: Most investors use one of two approaches:

• Time-based: Rebalancing on a set schedule, such as once a year or every quarter.
• Threshold-based: Rebalancing when an asset class drifts more than a set percentage (for example, 5%) away from your target.

NOTE: The method matters less than having a plan and sticking to it.

Why Rebalancing Matters

Rebalancing isn’t about chasing returns, it’s about discipline. Without it, your portfolio can quietly drift into a risk level you didn’t intend. By resetting back to your target allocation, you:

• Protect gains: Lock in profits from assets that have grown quickly.
• Control risk: Keep your portfolio aligned with your comfort level and goals.
• Stay disciplined: Create a built-in system to act rationally, not emotionally, when markets swing.

Over time, this simple habit helps you capture steadier returns and increases the likelihood of reaching your retirement goals.

15 Tips for Rebalancing

1. Understand Your Target Asset Allocation

The purpose of asset allocation is simple: balance risk and reward in a way that fits your goals. A good allocation blends different types of investments—and diversification within those types—so that no single bet can make or break your future.

• Stocks: Individual stocks, especially in a single sector, can be exciting but risky. Diversifying across many companies, sizes, and industries lowers the risk while keeping growth potential.
• Funds: Mutual funds and index funds make diversification easy, giving you exposure to hundreds or thousands of companies in one investment.
• Bonds and Fixed Income: Less volatile than stocks, but typically offer lower returns—sometimes below inflation.
• Cash: Safest in terms of preserving face value, but steadily loses purchasing power over time.

Your ideal allocation is personal. It depends on:

• Your age and time horizon
• Whether you’re retired (or close to it)
• How much of your income must come from investments
• Your legacy goals (do you want to leave an inheritance?)
• Other sources of guaranteed income, like Social Security or a pension
• When and how often you’ll need to tap your assets

There’s no single “perfect” allocation. What matters most is choosing a mix that matches your risk tolerance, gives you access to money when you need it, and supports your long-term goals.

2. Decide How Often to Check Investments

Monthly, quarterly, or annually—pick a cadence that works for you. Checking too often can lead to overreacting; too rarely, and you may miss important drifts. The key is consistency.

3. Use Thresholds, Not Guesswork

The standard rule of thumb is to rebalance when your target asset allocation is 5% or more off.

However, you should create your own strategy, commensurate with your goals and values. What is important is that you have a predetermined plan and goals for rebalancing so that you aren’t reacting emotionally to markets.

Know your targets and set a plan for what you are going to do under certain conditions. 

4. Don’t Panic in Volatile Markets

When markets swing wildly, it can be tempting to act fast. But history shows recoveries often come quicker than expected (like the 60% surge after the 2008–09 lows). Rebalancing works best with patience.

In recent history, markets have recovered quickly — even from dramatic falls. The 2008–2009 financial crisis illustrates this vividly:

• Despite assurances from the pundits that investors should not expect a v-shaped recovery, stocks did exactly that.
• From the market low in March 2009, the Dow Jones index gained 30% in the span of just three months.
• By the end of the year it was up more than 60% from its low point. All of this occurred despite fear continuing to grip the market and the widespread belief that stocks were experiencing a false recovery and would fall below their March lows in short order.
• Investors who were still waiting for the “all clear” signal to get back into stocks instead saw stocks leave them in the dust.

5. Remember: Buy Low, Sell High

Rebalancing automatically pushes you to do the hardest thing—sell assets that have gone up and buy those that have fallen. It feels counterintuitive, but it enforces discipline and long-term growth.

6. Go Gradually

You don’t have to rebalance your entire portfolio in one fell swoop, especially when you are uncertain what the markets will do next.

If, to get back to your target allocations, you need to sell $100,000 in bonds. Start by selling and reinvesting just $25,000 and wait a week to see what happens in the markets. 

You don’t need to do it all at once, and with volatility, a 25% adjustment may end up being adequate.

7. Upgrade While You Rebalance

When rebalancing, you can focus on selling specific investments that you don’t like and move into positions that you would be more comfortable holding for the long term like a low-cost index fund.

When the entire market goes down, one strategy that can pay off big is to improve the mix or the quality of your investments.

8. Have Some Winners Right Now? Consider Selling Them and Reinvesting

Remember, sell high!

If you have some stocks that are winners, you might want to consider selling those while they are soaring and buy index funds for the long haul.

NOTE: This — and everything else in this article — is not advice, just ideas to consider.

9. Keep Contributions Flowing

f you’re still working, don’t stop regular contributions—whether the market is up or down. Automatic investing smooths volatility and may reduce the need for big rebalances.

10. Consider a Roth Conversion When Rebalancing

If you have been considering a Roth conversion, doing the transfer when the market is down means that you’ll pay income taxes on a lower portfolio value.

And, when the market bounces back, you will benefit from future tax-free growth and withdrawals from the Roth account.

A few things to keep in mind:

• A Roth conversion is a permanent move. It used to be you could undo the conversion, but the Secure Act changed that.
• You’ll want to consider if a conversion will raise your Medicare Part B and Part D premiums in future years.
• Be sure you are careful to follow all conversion rules and reinvest according to your target allocations.
• Most importantly, make sure you have the money available to pay the taxes owed on the conversion. Ideally not from the account you are converting which reduces the efficiency of a conversion.

It is easy for you to model different Roth conversion “amounts”what ifs” in the Boldin Retirement Planner.

Learn more about Roth Conversions.

11. Leverage Your Brokerage

Don’t hesitate to ask your brokerage or custodian for free guidance. Many offer rebalancing tools or personalized insights.

Better yet, work with a fee-only advisor who can help you determine your rebalancing strategy and provide support when you need to make a move. Collaborate with an advice-only, flat-fee CERTIFIED FINANCIAL PLANNER® professional from Boldin Advisors. Book a FREE discovery session.

12. Consider Tax Loss Harvesting

In taxable accounts, selling losers can offset gains (and even up to $3,000 of ordinary income). Done strategically, this improves tax efficiency while refreshing your portfolio.

13. Reset Your Allocation Over Time

As your life evolves, so should your target allocation. Revisit your goals, income needs, and risk tolerance every few years—especially as retirement approaches.

14. Automate if Possible

Many retirement accounts and brokerages let you set up automatic rebalancing. Automation reduces the temptation to time markets and keeps your portfolio aligned without effort.

15. Stick to the Plan

The biggest mistake is letting emotions drive decisions. A written plan gives you clarity in tough times, helps you avoid knee-jerk reactions, and keeps your portfolio working for you.

Conclusion

Rebalancing investments is more than a maintenance task—it’s an intentional way to protect your financial future. Asset rebalancing ensures your portfolio reflects the right mix of risk and return for your personal goals. Without it, gains in one asset class can throw off your allocation, increasing your risk exposure or causing you to miss out on opportunities elsewhere.

Knowing how to rebalance investments and when to rebalance your portfolio can be the difference between staying on track and drifting off course. For example, if your stocks outperform and grow from 60% of your portfolio to 75%, you may be exposed to more volatility than you intended. Selling some stocks and reallocating to bonds or other assets brings your risk level back in line.

You can also use tools like an investment rebalancing calculator to model different scenarios. Understanding the ROI for portfolio rebalancing helps you see the long-term value—not just in potential returns but in reduced risk and improved portfolio discipline. Whether you’re rebalancing a 401k, IRA, or taxable account, the goal remains the same: a steady, sustainable path toward your retirement goals.

Updated September 2025