The act of adjusting a portfolio in order to return it to the appropriate asset allocation mix. For example, an investor’s asset allocation plan may call for 65 percent of the funds to be invested in stocks, 30 percent in bonds, and 5 percent in cash. If stocks have risen sharply over the last year, they are likely to occupy a greater percentage of the portfolio than desired. Some of those stocks must be sold to get the portfolio back in balance. The same thing happens when an asset class declines. Portfolios should be rebalanced on a regular basis, such as once a year, or perhaps even once a quarter.
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