Staying Balanced: How to Rebalance Your Investment Portfolio After Market Volatility

When the market takes you on a roller coaster ride, keeping your investment portfolio balanced can feel challenging—but it’s an important part of managing risk. After big swings, your investments might lean too heavily toward certain assets, moving you away from your intended goals and risk tolerance. Rebalancing can help you restore your target mix and maintain your long-term investment strategy, though it does not guarantee a profit or protect against losses.

Why Rebalancing Matters

When markets move sharply—like a sudden jump in stocks or a drop in bonds—it’s easy for your portfolio to drift from its original mix. Imagine you started with 60% stocks and 40% bonds, but then stocks soar and suddenly you’re at 80% stocks. That extra exposure piles on more risk than you probably intended. By rebalancing—selling some of the investments that have grown too much and buying more of those that have lagged—you can bring your portfolio back to where you’re comfortable. Sometimes, it’s as simple as steering new contributions toward the underrepresented areas.

How to Rebalance

You have several straightforward ways to rebalance your portfolio:

• Sell some investments from areas that have become too large in your portfolio, and use that money to buy more of what’s now underrepresented.
• Put new money toward the parts of your portfolio that need a boost.
• Tweak your automatic investments so they put more into the areas that have fallen behind, until things are back in balance.

Keep an eye on transaction costs and taxes when you make changes. Before you rebalance, it can help to check in with a financial adviser or tax pro—they can help you avoid unnecessary expenses.

When Should You Rebalance?

Many financial professionals suggest reviewing your portfolio every 6 to 12 months, or after major market changes. Some investors use a system called “tolerance bands”—they only rebalance when an asset’s allocation shifts by a certain percentage. While rebalancing may help support a disciplined investment approach, it does not ensure profits or prevent losses.

Benefits of Regular Rebalancing

• Helps you keep risk and big swings in check.
• Keeps you on track for long-term goals, whether that’s retirement, college savings, or something else important to you.
• Makes it easier to stick to your plan, avoid chasing the latest trends, and resist the urge to panic when markets get rough.
• May help manage risk and support your long-term investment objectives, while considering factors such as taxes and transaction costs.

SEC Guidance and Regulatory Considerations

The SEC (Securities and Exchange Commission) highlights the importance of rebalancing for maintaining your intended risk profile. They recommend reviewing your portfolio regularly and documenting important investment decisions. Remember to consider transaction fees and taxes when making changes to your portfolio.

Disclosure

This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. All investing involves risk, including the possible loss of principal. You should consult a qualified financial adviser or tax professional before making investment decisions. The information above references guidance from the U.S. Securities and Exchange Commission (SEC) and other reputable sources.

Sources:

• https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/diversifying-risk
• https://www.sec.gov/about/reports-publications/investorpubsassetallocationhtm
• https://www.investor.gov/additional-resources/spotlight/directors-take/rebalancing-your-investment-portfolio
• https://www.investopedia.com/articles/stocks/11/rebalancing-strategies.asp
• https://www.smartasset.com/investing/benefits-of-rebalancing-portfolio
• https://investor.vanguard.com/investor-resources-education/portfolio-management/rebalancing-your-portfolio

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