Inside Out Money 131. What is rebalancing and should I be doing it?
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Oct 5, 2025 Explore the crucial concept of rebalancing your investment portfolio to manage risk rather than chase returns. Discover how allocations can drift over time and the importance of timing your rebalancing efforts. Learn about the tax consequences of rebalancing, including tips for handling tax-deferred accounts. The hosts also delve into automated options like robo-advisors and target-date funds. Finally, hear personal insights on risk tolerance and practical steps to effectively rebalance across different accounts.
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Why Rebalancing Exists
- Rebalancing restores your portfolio to your chosen allocation when performance skews weights over time.
- It separates strategy (target allocation) from execution (actual portfolio drift).
Check Annually, Review Quarterly
- Check and rebalance your portfolio at least annually and review it quarterly for big drifts.
- Avoid unnecessary frequent rebalancing like quarterly trades unless you have a specific reason.
Prefer Tax-Deferred Rebalancing
- Rebalance inside tax-deferred accounts first to avoid triggering capital gains.
- Be cautious rebalancing in taxable brokerage accounts because sales can create tax consequences.