What is rebalancing?

Rebalancing: Bringing your allocation back to plan, for example after stocks rose far more than bonds.

Many investors choose a fixed split, for example 60 percent shares and 40 percent bonds. Price moves shift that split over time by themselves.

When rebalancing you bring the split back to plan. You sell part of what has risen most, or you add new money to what has lagged behind.

That keeps your risk roughly at the level you chose. Some people do it once a year, others when the split drifts more than a few percent.

Example
You have 10,000 euros: 6,000 euros in shares and 4,000 euros in bonds. The shares rise 20 percent to 7,200 euros. You now have 11,200 euros in total, 64 percent of it in shares. To get back to 60 percent, which is 6,720 euros, you move 480 euros from shares to bonds.

Watch out
Selling can bring costs and sometimes tax. Rebalancing lowers risk, but it can also mean you gain less from a rise.

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