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Rebalancing

Rebalancing Definition

Rebalancing is the action of realigning the weightings of a portfolio of investments. If the portfolio has deviated away from one's target allocation assets need to be bought or sold to maintain  the original desired level of asset allocation. Under-weighted securities can be purchased with new capital, over-weighted securities can be sold to purchase under-weighted securities. For example,  the original asset allocation was 30% stocks and 70% bonds and the stocks performed well, their  proportion could have increased to 50%. In order to keep the target some of the stocks need to be sold and bonds need to be bought.

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Market portfolio
Portfolio
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