An investment portfolio changes over time even if you don’t touch it at all—and that’s both its strength and its trap. All it takes is for some parts to grow faster than others, and a carefully thought-out plan will quietly begin to drift. In this article, we’ll show you why it pays to keep your portfolio under control, what rebalancing actually means, and how to set simple rules that help keep your strategy working even when markets change their mood.

What is portfolio rebalancing?

Rebalancing is the regular adjustment of a portfolio’s composition so that it matches the original plan. When some assets perform better than others, their share naturally grows—and with it, the level of risk you’re taking often changes as well. A typical example: a portfolio set up as 60% stocks and 40% bonds can, after years of strong stock growth, shift to something like 75/25. In practice, rebalancing means reducing part of the equity portion and adding to the bond portion so the weights return to the original ratio. The key point is that this is not an attempt to “pick” the right market timing, but a disciplined way of maintaining a strategy.

The main benefits of rebalancing

When you rebalance systematically, it brings more than just “tidy” percentages in your portfolio. Above all, it keeps risk in check, because the portfolio doesn’t deviate from the level of volatility you originally chose. It also strengthens discipline: instead of intuitive interventions, you rely on rules that apply in periods of euphoria as well as panic. A practical outcome is the natural application of the principle “sell higher, buy lower”—you reduce the share of assets that have risen significantly and, at the same time, buy more of those that have temporarily lagged. Finally, rebalancing helps keep the portfolio aligned with your goal—whether you’re investing for retirement, housing, or building a reserve—because in the long run, the portfolio’s composition should reflect what you want to achieve.

How often should you adjust your portfolio?

Once you know why to rebalance, the natural question is “how often.” The most common approach is time-based rebalancing, for example once a year—it’s simple, predictable, and easy to stick to. The downside is that between check-ins, big market moves can occur and the portfolio may drift from the plan more than you’d like. The second approach is deviation-based rebalancing, for example when the weights change by more than ±5%. This method monitors risk more sensitively, but it may mean more frequent interventions—and therefore higher costs. There is no universal “correct” setting, though. More important than perfect frequency is choosing a rule you can follow long-term without it exhausting you.

Checking weights in practice

Let’s look at a specific example: a 60% stocks / 40% bonds portfolio shifts to 75/25 after stocks rise. In that case, the first step is simple—identify the current weights and determine how far they’ve deviated from the plan. Then you have two practical options: either move part of the value from stocks into bonds to bring the portfolio back to 60/40, or (if you invest regularly) direct new contributions more toward the bond component until the ratio balances out. With bonds, it’s worth understanding how yields, risks, and issue ratings work so the stabilizing part of the portfolio truly fulfills its role (if this topic interests you, you can read more about it in our article). The result of rebalancing is very practical: you reduce risk concentration, restore diversification, and put the portfolio back on tracks that match your intent.

The most common mistakes

Rebalancing is a simple concept, but in practice it often goes wrong in the details. One typical mistake is rebalancing too frequently, which brings more stress than benefit and can unnecessarily increase costs. On the other hand, there’s “rebalancing by feeling,” where headlines, fear, or euphoria decide instead of pre-set rules—this is exactly when a disciplined process turns into a chaotic reaction. Fees and taxes are also often underestimated; they can eat more into returns than it seems at first glance. The biggest mistake, however, is the absence of a clear system: without rules, rebalancing either isn’t done at all or is done randomly, which defeats its purpose.

For whom is rebalancing especially important?

It benefits long-term investors the most, because the longer the horizon, the greater the chance that the portfolio will gradually drift away from the strategy. It also helps people with multiple asset classes, where proportions can change faster and less noticeably. It is especially important for more conservative investors who want to keep risk under control and don’t want the market to quietly “increase” it through the growth of one component. And finally, rebalancing is key for those approaching their goal—during that period, protecting the results already achieved is often more important than chasing maximum returns.

Long-term success is built on discipline, not luck

A portfolio changes over time even if an investor does nothing, which is exactly why it makes sense to sit down with it from time to time and bring it back to the plan. Rebalancing isn’t about predicting the future or “beating” the market, but about keeping risk, discipline, and the portfolio’s direction under control even in a changing environment. Over the long run, it’s not one brilliant decision that matters, but a series of sensible steps you can repeat consistently.

For more investment trends and useful tips, take a look at our previous articles on the AxilAcademy website.