Rebalancing
Trading a portfolio back toward its target mix after drift, to restore the original risk decision — not to chase performance.
A portfolio usually starts with a target mix — say, 60% stocks and 40% bonds. That mix is a decision about risk. But different assets grow at different speeds, so the mix drifts on its own.
A worked example. A $10,000 portfolio set at 60/40 holds $6,000 in stocks and $4,000 in bonds. If stocks rise 20% while bonds stay flat, the portfolio holds $7,200 and $4,000 — a total of $11,200, drifted to roughly 64/36. Nobody sold anything. The market changed the mix anyway.
Rebalancing is trading back toward the target — here, selling some stock and buying some bonds until the mix sits near 60/40 again. What it restores is not performance but the original risk decision. Left alone, a drifting portfolio quietly becomes riskier or more conservative than its owner ever chose. Selling recent winners can trigger taxes in a regular brokerage account; many people rebalance on a schedule or when drift crosses a threshold.
Plumb is financial education, not financial, investment, tax, or legal advice.