Rebalancing your mix

The lesson in full

You pick a mix for your portfolio, say 60% stocks and 40% bonds, to match the risk you can live with. Then the market quietly changes it for you.
Start with US$10,000: US$6,000 in stocks and US$4,000 in bonds. Stocks gain 30% and bonds 2%. Now you hold US$7,800 and US$4,080: about 66% stocks.
Rebalancing means selling a bit of what grew and buying what lagged, back to your target. Here: move about US$670 from stocks to bonds, and you're back at 60/40.
Two common rules: rebalance on a fixed date, like once a year, or when a part drifts more than 5 percentage points. New savings can do the job too: add them to the part that's behind.
Skip it and risk creeps up. After a long bull run, a 60/40 mix left alone can drift toward 80/20: far more risk than you chose.
Common mistake
Myth: "Keep the winners, cut the losers." Rebalancing does the opposite on purpose: it trims winners and tops up laggards, so you sell high and buy low by rule. Selling can trigger tax, so check local rules.
Key takeaway
Pick a target mix, check it on a schedule and nudge it back. Rebalancing keeps your risk where you chose it.

Rebalancing means... Returning to your target mixYou move money from the parts that grew to the parts that lagged until the mix matches your plan again.
After stocks surge, a 60/40 portfolio usually holds... More than 60% stocksStocks grew faster than bonds, so they now make up a bigger share of the total.
A common habit is to rebalance... About once a yearOnce a year, or when the mix drifts more than about 5 points, keeps costs low and risk on target.
Your 50/50 mix is now 58% stocks and 42% bonds. To rebalance, you... Sell some stocks, buy bondsStocks are above target and bonds below, so you trim stocks and add to bonds until both are back at 50%.