Rebalancing

Returning a portfolio to its target weights after market movements have shifted them.

Say your portfolio targets 60% equities and has drifted to 70% after a strong year. You sell the excess and buy the underweight assets.

Rebalancing forces selling what has done well and buying what hasn't. That's behaviourally difficult and historically rewarded, because it mechanically trades against momentum at the extremes.

Frequency involves a trade-off against costs and taxes. Annual, or on a threshold breach, is the common compromise.

Having a rule matters more than the schedule.