LONG-TERM INVESTING

Rebalancing

Rebalancing is periodically returning a portfolio to its target allocation by trimming what has grown beyond its share and adding to what has fallen below it — a rule that mechanically sells strength and buys weakness.

A 70/30 split left alone through a strong equity run becomes 80/20 or worse without any decision being made. The risk profile drifted upward silently, and it drifted most just as valuations were highest.

Why it feels wrong every single time

Rebalancing always requires selling the thing that has been working and buying the thing that has not. It is uncomfortable by construction, which is why it is normally specified as a rule — on a calendar, or on a drift threshold — rather than left to judgement.

This is the same structural idea as a trading plan: the decision is made in advance precisely because the moment it triggers is the moment you will least want to make it.

Related terms

Asset allocationAsset allocation is the decision about what proportion of a portfolio sits in each broad asset class — equities, bonds, cash, and others — and it accounts for far more of a portfolio's variability over time than the selection of individual holdings within those classes.DiversificationDiversification is holding assets whose returns do not move together, so that a poor outcome in one is not a poor outcome in all — it reduces the impact of being wrong about any single holding, and does not reduce the risk of being wrong about the market as a whole.Trading psychologyTrading psychology is the study of how emotional and cognitive factors — fear, greed, loss aversion, overconfidence — affect trading decisions, and of the practices used to keep decisions consistent under pressure.

Maintained by Jared Sinclair, Founder · Syrax Global FZCO · Definitions are educational, not financial advice.

Knowing the vocabulary is the easy part.

Every term here can be learned in an afternoon. Applying them consistently under pressure is the part that decides outcomes — and the part almost nobody measures. That is what the series is about.

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