What is portfolio rebalancing?

Portfolio rebalancing is the process of adjusting the weights of assets in an investment portfolio to maintain a desired allocation. Over time, market movements can shift these weights, increasing or decreasing risk. Investors rebalance by buying or selling assets to return to their target mix. This is typically done periodically (e.g., quarterly) or whenever allocations drift beyond set thresholds. Rebalancing helps manage risk, maintain investment goals, and avoid overexposure to any one asset class after strong market performance while taking transaction costs and tax implications into consideration.