Asset rebalancing is the process of realigning the weightings of the assets in an investment portfolio back to their originally intended target allocation, after market movements have caused them to drift. For example, if equities have significantly outperformed debt in a given year, the equity portion of the portfolio may have grown from a target 60% to 70%, increasing the portfolio's risk beyond the investor's comfort level. Rebalancing involves selling a portion of the overperforming asset class and reinvesting in the underperforming one to restore the original allocation. Regular rebalancing—whether annually, semi-annually, or triggered by defined deviation thresholds—enforces buy-low-sell-high discipline and keeps portfolio risk aligned with the investor's goals.
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