Over time, winning assets grow and losing ones shrink, drifting allocations away from targets. Rebalancing sells some winners and buys some laggards, quietly enforcing 'buy low, sell high' discipline.
Common rules: rebalance annually, or when any position drifts more than 5 percentage points from target. In tax-advantaged accounts there's no tax cost; in taxable accounts, prefer using new contributions to rebalance where possible.
See also
Practice this in Aurora
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Open Decision Lab →Frequently asked questions
Does rebalancing improve returns?
The main benefit is risk control. Return differences vs. never rebalancing are modest and vary by period.