Key takeaways
- Drift is when winners grow into a bigger share than you planned.
- Rules (calendar or threshold) beat gut feeling.
- Taxes and trading costs are part of the decision.
Say you planned a 60/40 split between stocks and bonds. After a strong year for stocks it may be 70/30. That gap is drift: your portfolio is now riskier than the one you chose.
Two common approaches
- Calendar: review and reset once or twice a year.
- Threshold: act only when an allocation moves more than a set amount, for example five percentage points, from its target.
Neither is “right”. What matters is picking a rule before the market is moving, so emotion does not choose for you.
Ways to rebalance
- Direct new contributions to the part that is under target.
- Reinvest dividends where you are underweight.
- Sell part of an overweight position and buy the underweight one.
Counting the cost
In a taxable account, selling can create a tax bill, and every trade can carry a cost. Often the cheapest rebalance is steering new money instead of selling. Rules differ by country and account type, so check official guidance.
Small drift is normal. A rebalance that costs more than the risk it removes is not helping.
For informational and research purposes only. Not financial advice. Past performance doesn't guarantee future results.