The strategy that forces you to sell winners and buy losers

Say you decide on a simple target: 60% stocks, 40% bonds. A year later stocks have surged, so your mix has drifted to 70/30. It feels great — but you're now taking more risk than you signed up for. Rebalancing is the discipline of selling some of what grew and buying more of what lagged to return to your target.

The move feels backwards. You're trimming your best performer and topping up the laggard — the opposite of chasing hot returns. But that's exactly the point: rebalancing is a rules-based way to 'buy low, sell high' without having to predict anything. It quietly resets your risk and removes the emotion of the decision.

Most people rebalance on a schedule (say, once a year) or when an allocation drifts past a set threshold (e.g. more than 5 points off target). In a taxable account, selling can trigger taxes, so many investors rebalance by directing new contributions into the underweight asset instead of selling. The goal isn't to maximize returns — it's to keep your portfolio's risk from silently creeping upward.