How often should a typical portfolio be rebalanced?

• A. Annually or when drift exceeds a pre-set threshold
• B. Only after a market crash
• C. Never after tax considerations
• D. Only when cash additions occur

Answer: (A)

Rebalancing is about keeping your investments aligned with the level of risk you’ve planned for. The main idea is to maintain your target asset mix by periodically adjusting back to those targets as prices move. A practical rule is to rebalance on a regular basis (like annually) or whenever your portfolio’s actual allocation drifts beyond a pre-set threshold due to market changes. This disciplined approach helps prevent your portfolio from becoming too risky or too conservative as markets swing, and it can keep you on track toward your long-term goals.

Waiting for a market crash isn’t a reliable trigger, because you can’t predict crashes and drift happens gradually. Rebalancing solely after tax considerations ignores the tax implications of selling and the broader goal of risk control. Rebalancing only when cash is added misses drift from existing investments, letting risk creep up even without new money.