The Rebalancing Edge

Rebalancing is the mechanical discipline that forces you to do what emotions prevent: sell winners and buy losers.

Say your target is 70% stocks, 30% bonds. After a great stock year, you're at 80/20. Rebalancing means selling some stocks and buying bonds to get back to 70/30. After a crash, you're at 55/45 — so you sell bonds and buy cheap stocks.

This automatically implements "buy low, sell high" without requiring courage or market timing. But rebalancing's main job is risk control, not guaranteed extra return. In some periods it can improve risk-adjusted results; in strong trending markets it can reduce total returns because you trim winners.

Rebalance annually or when any asset class drifts more than 5 percentage points from your target. Set calendar reminders — don't trust yourself to remember during market euphoria.