How to Rebalance Your Portfolio: 4 Tactics

Rebalancing involves buying or selling assets to diversify and find the right balance between risk and reward.

Written by

Co-written by

Reviewed by

Reviewed by other Updated Nov 18, 2025 NerdWallet is committed to editorial integrity.

The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Best Financial Advisors Find a Financial Advisor Near You | NerdWallet How to Choose a Financial Advisor in 5 Steps 5 Best Wealth Management Services Nerdy takeaways "Don’t put all your eggs in one basket"; "never bet it all on one roll of the die." Whatever proverb you pick, it boils down to the same thing: find the right balance between risk and reward to minimize the chance of heartbreak, sleepless nights and financial distress. Investors do that via asset allocation — building a balanced portfolio of a diversified mix of assets. That way, when one investment unexpectedly drops, the entire portfolio doesn’t drop along with it.

The basics of diversification

Diversification hedges against risk by spreading money across various assets that don’t typically move together. That helps isolate the damaging effects of drops in any single type of investment to protect the portfolio's overall returns. You can diversify your portfolio in various ways, such as by: Asset class: Stocks, bonds, cash. Asset class Company size: Large-capitalization, mid-cap or small-cap stocks. Company size: Geographic location: Foreign companies or domestic ones that conduct a lot of business overseas. Geographic location: Industry: Consumer goods, energy, technology, health care. Industr Investing style: Mutual funds that invest in companies poised for rapid growth or ones that offer value; stocks that produce income (by paying out dividends). Investing style:

Knowing when to rebalance a portfolio

A diversified portfolio's asset allocation will naturally drift over time. For example, if you allocate 40% of your portfolio to stocks, that proportion could quietly become 50%, 60% or more of the value of your portfolio if stock prices rise at a faster rate than the other investments in your portfolio. This is one reason it's important that you and your financial advisor review your portfolio frequently. This is also where rebalancing comes in. Rebalancing means restoring a portfolio to its original asset allocation proportions by buying and selling investments. » MORE: How to choose a good financial advisor » MORE: How to choose a good financial advisor Brokerage firms

NerdWallet rating Learn more Learn more

on Charles Schwab's website

NerdWallet rating Learn more Learn more

on E*TRADE's website

NerdWallet rating Learn more Learn more

on Vanguard's website

NerdWallet rating Learn more Learn more

on Fidelity's website

4 portfolio rebalancing strategies

Rebalancing is not about completely overhauling your portfolio. It is meant to be restorative, giving your portfolio room to grow while keeping an eye on its overall health. These popular strategies can help you rebalance your portfolio.

1. The “While You’re at It” Strategy

How it works: Every time you invest new money (making monthly or quarterly IRA contributions, for example) or withdraw funds (if you’re already retired and drawing income from an account), identify underrepresented or overweighted asset types in your portfolio. Then beef up your position with each contribution check or lower your exposure with withdrawals. How it works: Why it's handy: A person's investment portfolio often includes multiple financial accounts, such as IRAs, 401(k)s, brokerage accounts, and even long-forgotten paper bonds. Why it's handy: Depending on the size of your portfolio, you may not be able to accomplish all the rebalancing work that needs to be done. In that case, add on one of the other strategies.

2. The “Home Base” Strategy

How it works: If most of your retirement assets in a single account, such as a 401(k) or an IRA you rolled over when you left a job, focus your rebalancing efforts on that main account. Even better if it’s a tax-advantaged retirement account, because selling within the account won’t generate capital gains tax bills. How it works: Why it's handy: What goes on in your biggest investment account can have the biggest effect on the overall health of your savings. But don’t ignore the role your other assets play, especially if those assets are concentrated in one asset class. For example, if you’ve got a separate brokerage account that's mostly invested in growth stocks, you might consider trimming your exposure to similar investments in your main account. Why it's handy:

3. The “I Treat All My Children the Same” Strategy

How it works: Treat each separate account as a fully balanced portfolio. Decide on your target asset allocation mix and then deploy the same strategy in each. How it works: Why it's handy: Considering each account’s tax status and investment fees can help minimize what you pay the IRS. However, depending on the investment selection in each account (e.g., your 401(k) fund options versus the wider assortment in a self-directed IRA) you may not be able to invest in the exact same mutual fund in each account. Look for a fund that offers similar exposure or has the same investment objective. Why it's handy:

4. The “Sweat the Biggest Stuff” Strategy

How it works: Check your large-cap stock positions first to see if you can rebalance your portfolio by shifting money in and out of those investments. How it works: Why it's handy: U.S. large-cap stocks are the biggest slice of the pie in most investors’ portfolios. (Market capitalization is the value of all of a company's outstanding shares. Large-cap stocks belong to companies with market capitalizations of at least $10 billion.) Any shift can have big effects on an asset allocation. Why it's handy: » MORE: See our picks for the year's best financial advisors » MORE: See our picks for the year's best financial advisors » MORE: See our picks for the year's best financial advisors 🤓 Nerdy Tip The more you can avoid fees (such as transaction costs) and taxes, the more of your money is left to compound over time.

How often and when to rebalance your portfolio

You can rebalance your portfolio any time, but these three situations might warrant a special look. In April (tax time) or December (tax-loss harvesting time): Many investors rebalance their portfolios when they're doing other financial housekeeping, such as preparing their taxes in the spring or taking advantage of year-end tax-loss harvesting. In April (tax time) or December (tax-loss harvesting time): When an investment shifts more than 5%: When the performance of a single asset changes a portfolio's value by more than 5%, it can be a good time to rebalance. However, be careful about reacting to short-term price movements; you might miss out on potential gains when the asset recovers. When an investment shifts more than 5%: Annually: A once-per-year look is common for many financial advisors, though market swings, tax-loss harvesting and other events can prompt more frequent rebalancing . Annually: » MORE: How taxes on stocks work » MORE: How taxes on stocks work Explore more on Article sources NerdWallet writers are subject matter authorities who use primary, trustworthy sources to inform their work, including peer-reviewed studies, government websites, academic research and interviews with industry experts. All content is fact-checked for accuracy, timeliness and relevance. You can learn more about NerdWallet's high standards for journalism by reading our editorial guidelines. Financial Planning Association. An Exploratory Study of the Wealthy’s Investment Beliefs, Preferences, and Behaviors. Accessed Nov 18, 2025. About the authors Yochim Dayana is a former NerdWallet authority on investing and retirement. She has written for The Associated Press, The Motley Fool, Woman’s Day, Real Simple, Newsweek, USA Today and more. She has written and contributed to several personal finance books and has been interviewed on the "Today" Show, "Good Morning America," NPR, CNN and other outlets. Durana Alieza Durana is a former investing writer at NerdWallet. She has over a decade of journalism experience covering housing, labor, gender and public policy issues for the Eviction Lab, The Fuller Project for International Reporting, New America and Slate. Her work has appeared in USA Today, The Washington Post, The Atlantic and Harvard Business Review. She is based in St. George, Utah. How Much Does a Financial Advisor Cost? By Arielle O'Shea Do You Need a Financial Advisor? 7 Ways to Tell By Taryn Phaneuf How to Find Cheap or Free Financial Advice By June Sham 3 Steps to Prepare for Your First Financial Advisor Meeting By June Sham