Glossary / Behaviour

Rebalancing

Rebalancing is selling assets that have grown beyond their target weight and buying those that have fallen below it, restoring a portfolio to its intended allocation.

Its purpose is risk control rather than return enhancement. Left alone, a portfolio drifts towards whatever has performed best and becomes concentrated in it, usually just before it stops performing.

Rules based approaches, whether by calendar or by band, exist because doing it by judgement means never doing it.

Where people get it wrong

Reading it as a way to boost returns. It is a way to stop a portfolio quietly becoming something you did not choose.

The framework behind it The behaviour gap sets out the rule, the arithmetic and where it breaks.

Read the framework

Related terms

Home bias Home bias is the tendency to hold far more of one's own country's assets than its share of the world market justifies, driven by familiarity rather than by analysis. Correlation Correlation measures how two assets move relative to each other on a scale from minus one to plus one, and diversification only works to the extent that the correlation between holdings is below one. Safe withdrawal rate A safe withdrawal rate is the percentage of a portfolio that can be withdrawn in the first year of retirement, then increased with inflation, with a high probability of the money outlasting the retiree.

Investments Playbook publishes educational research and general information. Nothing on this site is personal investment advice, a solicitation, or a recommendation to buy or sell any asset. Property and securities can fall in value. Past performance does not predict future returns. Figures shown are indicative and may be delayed. Always take regulated professional advice before acting.