Skip to Content
Fund Spy

Here's Why You Should Rebalance

Keep your portfolio's risks in check with this one simple trick.

Over the past decade, investors have become accustomed to U.S. stocks hitting new all-time highs. While the extended bull market has been a boon to portfolio balances, investors that have let the market's rise drive their equity allocations higher may now be holding riskier portfolios than they initially signed up for. For example, a hands-off investor that built a traditional 60/40 portfolio 10 years ago would have a portfolio that's closer to 80% in equities as of the end of 2019. It's possible our hypothetical investor's risk tolerance skyrocketed along with the stock market, but it's more likely that the current portfolio no longer resembles an appropriate blend of risky and safe assets.

Rebalancing, or selling a portfolio's best performers to buy the worst performers periodically, is one of the best ways to protect against market movements altering a portfolio's risk profile. The advantages of rebalancing are especially apparent in tax-favored accounts, such as IRAs or 401(k)s, where tax implications are not a concern. Rebalancing may also be prudent in taxable accounts, but the advantages aren't as straightforward, as it may trigger capital gains taxes depending on the investor's income level and capital gains exposure. As such, this article evaluates the merits of rebalancing in tax-favored vehicles.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.