Rebalancing is the process of adjusting a portfolio back to its target asset allocation. Over time, some investments may grow faster than others, causing the portfolio to drift away from its original structure.

For example, if stocks perform exceptionally well, they may represent a larger percentage of the portfolio than originally planned. Rebalancing involves selling part of the outperforming assets and buying underrepresented assets.

Regular rebalancing helps maintain the desired level of risk and keeps the investment strategy aligned with long-term goals.