Rebalancing

Rebalancing

Rebalancing is the process of re-allocating invested funds so that a portfolio follows an intended investment strategy. Periodic rebalancing is necessary because the allocation of funds will change as securities perform at different levels. For example, one security may experience a value increase of 25 percent, while the rest of the portfolio grows at an average of 8 percent. The investor will then have too much exposure in the out-performing security. Rebalancing will return the portfolio to the desired asset allocations.