When markets move, your investments move with them, sometimes more than you’d like. Over time, even a well-constructed portfolio can drift away from its original design. Rebalancing is a process designed to help bring your portfolio back in line with your goals, risk tolerance, and time horizon, keeping your financial plan on course.
Why Rebalancing Matters
When your portfolio was first created, it was built to match your investment objectives, a balance of growth, income, and risk designed around your personal circumstances. But over time, different asset classes perform differently.
For example, stocks often grow faster than bonds but are also more volatile. As these assets change in value, your portfolio can become more heavily weighted toward riskier investments, potentially exposing you to more market volatility than intended.
Rebalancing corrects that drift, returning your portfolio to its target allocation and helping maintain your intended level of risk.
Common Rebalancing Approaches
There’s no single “right” way to rebalance. The best method depends on your personal goals, preferences, and tax considerations. Here are three common approaches:
- Buy and Hold
This simplest approach involves letting your investments grow without making adjustments. Over time, certain assets may outpace others, which can increase your portfolio’s overall risk. It’s straightforward, but can lead to greater drift from your intended allocation.
- Time-Based (Constant Mix)
This approach involves rebalancing at regular intervals, such as quarterly, semiannually, or annually. It provides structure and consistency, though more frequent rebalancing may result in higher transaction costs or tax implications.
- Threshold-Based (Drift or Contingent)
Here, rebalancing occurs only when an asset class moves outside a set range, or “tolerance band.” For instance, if your target stock allocation is 60% with a 10% relative band, rebalancing would occur at 54% or 66%. This method offers flexibility and responds to market movement rather than the calendar.
What to Consider When Rebalancing
As you develop a rebalancing strategy, it’s important to consider:
- Volatility: Riskier assets may require wider tolerance bands to reduce frequent trades.
- Costs and Taxes: Trading can trigger transaction costs or taxable gains, especially in non-retirement accounts.
- Portfolio Goals: Your rebalancing strategy should reflect your investment objectives — whether growth, income, or preservation.
A well-structured approach keeps your portfolio aligned with your long-term plan while managing risk and costs thoughtfully.
Stay Focused on the Big Picture
Rebalancing isn’t about timing the market; it’s about discipline. By regularly reviewing and realigning your portfolio, you help to see your investments continue to reflect your goals, comfort with risk, and long-term strategy.
At GDS Wealth Management, we help clients design and maintain portfolios that evolve with their lives. Our advisers can guide you through building a plan that’s personalized, disciplined, and built to adapt to changing markets.
Ready to take a proactive step toward your financial future? Contact GDS Wealth Management today to learn more about creating a customized financial plan aligned with your goals.
GDS Wealth Management (“GDS”) is a Registered Investment Adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. GDS is not affiliated with Raymond James Financial Services, Inc. or its affiliates. This material, prepared by Raymond James and reproduced with permission, is provided for educational and informational purposes only and should not be considered personalized investment advice or a recommendation for any security or strategy. Rebalancing may trigger transaction costs and taxable events. There is no assurance any strategy will be successful or protect against loss. Investing involves risk, including possible loss of principal. Past performance does not guarantee future results. For more information about services, fees and full disclosures visit www.gdswealth.com.
