Portfolio Rebalancing: When and How to Do It?

Introduction

Portfolio rebalancing is a key step for any investor wishing to maintain an asset allocation consistent with their goals, risk profile, and investment horizon. Whether you invest via stocks, bonds, or ETFs, this strategy helps preserve the balance of your portfolio in the face of market fluctuations. In this article, we explain when and how to rebalance your portfolio effectively, providing practical advice tailored to beginners.

What is portfolio rebalancing?

Rebalancing involves adjusting the distribution of assets in a portfolio to return to a predefined target allocation. For example, if your initial strategy provides for 60% in stocks and 40% in bonds, and after a strong rise in stocks their share reaches 70%, rebalancing means selling some stocks and buying bonds to restore the 60/40 balance.

This process helps manage risk and prevents your portfolio from becoming too exposed to a single type of asset. It is therefore an investment discipline tool, essential for adhering to your financial plan over the long term.

Why is it important to rebalance your portfolio?

Financial markets are constantly evolving, which changes the relative value of assets in your portfolio. Without rebalancing, you risk:

• Unintentional risk-taking: your portfolio can become too volatile if the share of risky assets increases too much.
• Deviation from your goals: your allocations no longer match your investor profile or horizon.
• Loss of efficiency: you could miss opportunities or suffer greater losses in case of a reversal