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What is rebalancing and why should I do it?

As outlined above, asset allocation is one of the primary tools you have to help maximize your return potential based on your tolerance for risk. Over time, the assets in your portfolio will perform differently and that can cause your original asset allocation to become misaligned. This is common because of the ups and downs of the markets.

Rebalancing is simply bringing your portfolio back in line with your original asset allocation. Since you select an asset allocation to match your tolerance for investment risk, you may need to rebalance periodically to ensure that you’re not exposing yourself to more risk than you want. You should consider rebalancing at least annually. It's also a good idea to evaluate your goals and risk tolerance periodically too.2