Rebalancing is the process of adjusting your portfolio back to its intended asset allocation after market movements have shifted the actual proportions. For example, a strong run in equities can push your equity allocation well above your original target, quietly increasing your portfolio's risk level.
Without periodic rebalancing, a portfolio can drift significantly from the risk profile it was originally designed around — often without the investor noticing, since the drift happens gradually.
A common approach is to rebalance on a fixed schedule, such as annually, or when an asset class deviates beyond a set threshold from its target allocation. Both approaches aim to bring the portfolio back toward its intended risk level rather than reacting to market predictions.
Rebalancing isn't about timing the market — it's about maintaining the risk level you originally decided was appropriate for your goals.