The Rebalancing Ritual - Keeping Your Portfolio on Track

You've built a great portfolio. You're diversified, values-aligned and you’re investing consistently.

But something is happening. Stocks are up 40% this year. Bonds are down 5%. Your 70/30 portfolio is now 78/22.

Your allocation has drifted. This is where rebalancing comes in.

What Rebalancing Is (And Why It Matters)

Rebalancing means bringing your portfolio back to your target allocation.

Why it matters: Without rebalancing, portfolios can gradually become more aggressive as stocks rise. When markets eventually fall, this can lead to higher exposure to losses. Rebalancing is often described as a systematic way to reduce this drift by trimming assets that have grown and adding to those that have lagged.

How Rebalancing Works

Your target: 70% stocks, 20% bonds, 10% commodities

What happened: Stocks performed strongly, and your allocation drifted to 80% stocks, 15% bonds, 5% commodities. Rebalancing involves adjusting back toward the original mix.

For example:
Sell $10 worth of stocks.
Buy $5 of bonds and $5 of commodities.

You’re back to 70/20/10.

The Discipline: Why People Don't Rebalance

Most people don’t rebalance. Common reasons include:

Psychological: When stocks are up 40%, selling them can feel uncomfortable.

Practical: It may seem complicated, involving multiple trades, attention, and follow-through.

However, rebalancing is often used as a disciplined process to reduce emotional decision-making by following predefined rules.

How Often to Rebalance

Too often: Every month can lead to unnecessary trading.

Too rarely: Every five years may allow portfolios to drift significantly.

A commonly referenced approach is:

• Once per year
• Or when an allocation drifts 5–10 percentage points from target

Many investors rebalance:

• Annually (for example, once per year)
• Or when a specific drift threshold is reached

Rebalancing on nsave Is Simple

On nsave, portfolio allocations are visible in your dashboard.

You can see:

• Your current allocation
• Your target allocation
• Any drift from your targets

Rebalancing typically involves:

• Selling part of an overweight holding
• Buying part of an underweight holding

nsave does not charge commission on these trades. Other costs may apply depending on market conditions and third-party providers.

The Real Power: Dollar-Cost Averaging in Reverse

Rebalancing is often viewed as maintenance, but many investors see it as more than that.

When assets rise significantly, rebalancing involves trimming them. When assets fall behind, rebalancing involves adding to them.

Over long periods, this mechanical discipline is commonly used to manage risk and smooth portfolio behaviour, not by prediction, but by consistency.

An Example: Rebalancing Through a Crash

January 2024:

Portfolio: $100,000
Target: 70% stocks, 30% bonds
Actual: 70% / 30%

October 2024:

Portfolio: $110,000
Actual: 75% stocks, 25% bonds

You rebalance:

• Sell $5,500 of stocks
• Buy $5,500 of bonds

Back to 70/30

November 2024:

Markets decline by 20%. Compared to a portfolio that remained more stock-heavy, the rebalanced portfolio experiences a smaller overall decline, with bonds helping offset some of the volatility.

This example is illustrative only and does not predict future outcomes.

The Rebalancing Opportunity

Rebalancing creates structured moments to review and adjust a portfolio.

In rising markets, it may involve trimming assets that have grown quickly. In falling markets, it may involve adding to assets that have declined.

Rather than trying to predict market movements, rebalancing follows predefined rules.

Your Rebalancing Plan

Step 1: Set your target allocation

For example: 70/20/10, based on your own risk tolerance.

Step 2: Choose a schedule

Annually, or when allocations drift beyond a set threshold.

Step 3: Rebalance when triggered

Reduce overweight positions and add to underweight ones.

Step 4: Stay consistent

The discipline of following a process is often considered more important than reacting to short-term market movements.

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This content is provided for informational and educational purposes only and does not constitute financial advice. Investments involve risk, including the potential loss of capital, and past performance is not indicative of future results. Any examples or data are for illustrative purposes only. Before making any investment decisions, consult a licensed or qualified financial advisor who can assess your individual financial circumstances and objectives.

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