If you hold a mix of funds (say, stocks and bonds), a good year for one of them quietly changes your risk level. Rebalancing brings the mix back to the target you chose. Once a year is enough for most people, and December is a natural time to do it.
1. Write down your target mix
Example: 70% stock funds, 30% bond funds. If you never chose one, a target-date fund's mix is a reasonable reference point.
2. Check the current mix
Add up the value of each part across all accounts. Example: $10,000 total, now $7,800 in stocks (78%) and $2,200 in bonds (22%).
3. Use a threshold so you don't over-trade
A common rule: only rebalance if a part is more than 5 percentage points off target. Here stocks are 8 points over, so it's time.
4. Rebalance the low-cost way first
In taxable accounts, selling winners can trigger capital gains tax. Options that avoid it: point new contributions at the underweight part, or do the selling inside a 401(k) or IRA, where trades aren't taxed.
5. Log the date and the new mix
A short log keeps you from second-guessing and makes next year's check a five-minute job.
Free tools
- Free portfolio rebalancing spreadsheet (CSV for Excel / Google Sheets)
- Investment calculator
- Net Worth Tracker (36-month log, change and growth calculated automatically)
- 42 free budget templates, pay what you want ($0 is fine)
General information, not investment or tax advice.