Lesson 15 of 30 2 min read
Rebalancing: selling high, buying low, on autopilot
Key idea
A simple, mechanical habit that keeps your risk in check and quietly forces you to sell what's expensive and buy what's cheap.
Over time, a portfolio drifts. If equity surges, it grows to a larger share of your money than you intended, making the whole portfolio riskier than planned. Rebalancing is the periodic act of trimming what has grown too big and topping up what has shrunk, to restore your target mix.
How it works
Target mix
- Say 70% equity, 30% debt
- Chosen for your goals
- The risk level you decided on
After a bull run
- Equity has grown to, say, 80%
- Riskier than you intended
- Rebalance: sell some equity, buy debt
Why it is quietly brilliant
Rebalancing forces the discipline everyone struggles with: it makes you sell what has risen (booking gains from the expensive asset) and buy what has lagged (adding to the cheaper one), the opposite of the herd's buy-high, sell-low instinct. And it keeps your risk from silently creeping up during good times, so a later crash does not hurt more than you planned.
Done on a set schedule (say once a year) or when your mix drifts past a threshold, rebalancing is emotion-free discipline. It sells high and buys low mechanically, without you having to feel brave. How you rebalance is your choice.
Finished reading?
Marking this complete counts today, and your streak becomes day 1.