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What do we mean by Rebalancing?
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Let's say 50 cents of every dollar invested goes into Fund A, 25 cents into Fund B and 25 cents into Fund C.


At the end of the year you get your statement.  Due to the different returns earned by your asset classes, your portfolio looks like a third, a third and a third.  What do you do?



You REBALANCE, selling some of what outperformed and buying more of what underperformed.

Asset classes rise and fall from favor.  This year's loser will be a winner in the future.  Rebalancing forces you to sell some of the "winners" and buy more of the "losers". 

Rebalancing is the other 50% of what is required to be a successful investor. 

<NEXT: The Myth of Risk Tolerance>

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