Rebalancing restores a portfolio to its intended weights. Doing so requires selling what has risen and buying what has fallen, which is why it is harder to maintain than to describe.
Drift happens automatically
Assets grow at different rates, so the proportions in a portfolio change without any transaction. A holding that outperforms becomes a larger share of the total.
Left alone, a portfolio gradually concentrates in whatever has performed best, which is also whatever has become most expensive relative to its own history.
The allocation therefore drifts away from the risk level originally chosen, usually toward more risk rather than less. The drift is fastest after a strong run, which is when the portfolio can least afford it.
Nothing signals that this has happened. The account balance rises through the whole process, so the change in exposure is only visible to someone checking the weights deliberately.
Rebalancing is a risk control, not a return strategy
The purpose is keeping exposure aligned with the intended level. Whether it improves returns depends on how assets behave and is not the primary justification.
What it reliably does is prevent a single strong performer from dominating the portfolio and reintroducing concentration that was deliberately avoided.
Framing it as a return-seeking activity leads to abandoning it in exactly the periods when it does the most work.
The trades run against recent evidence
Selling the strongest holding and adding to the weakest feels wrong, because recent performance is the most salient information available at the moment of decision.
The discomfort is greatest after prolonged divergence, which is also when drift is largest and rebalancing most consequential.
This is why rules-based approaches, triggered by calendar or by threshold, tend to survive where discretionary judgement does not.
Thresholds and frequency involve trade-offs
Rebalancing more often keeps allocation tighter but incurs more transaction costs and, where applicable, more taxable events.
Threshold approaches act only when a weight has moved beyond a defined band, which concentrates activity in periods when it matters most.
The right frequency depends on costs, tax treatment and how far weights are allowed to move, which vary by account type and jurisdiction.
Contributions can do the work
Directing new contributions toward underweight holdings moves the allocation back toward target without selling anything.
This avoids realising gains and reduces transaction costs, though it only works while contributions are large enough relative to the portfolio.
Once a portfolio is substantial relative to new money, explicit rebalancing becomes necessary again, which is a predictable transition rather than a change in circumstances.