Why Rebalance

With $50,000 US stocks, $25,000 bonds, and $15,000 international (60/30/10 targets), the portfolio has drifted to 55.6/27.8/16.7 — international is overweight. Rebalancing means buying $4,000 of stocks and $2,000 of bonds while selling $6,000 of international. In taxable accounts, prefer directing new contributions to underweight assets to avoid capital gains.

Discipline Beats Prediction

Rebalancing is the rare strategy that works precisely because you do not know what happens next. You sell what has done well and buy what has lagged, on a fixed schedule — the mechanical opposite of chasing performance. Over decades this keeps your risk profile constant and your returns closer to your plan.

Thresholds and Taxes

Set a drift band (commonly ±5 percentage points) to avoid overtrading, and rebalance in tax-advantaged accounts first. If you must sell in taxable accounts, prioritize the lots with the smallest gains. New contributions are the cheapest rebalancing tool of all — they cost no commissions and create no tax events.