1. Markets cause portfolio weights to drift
If equity rises sharply, a 60/40 portfolio can become 70/30 without you buying more equity.
Tip: Drift changes risk even when you do nothing.
2. Rebalancing brings the mix back to target
You can sell overweight assets, buy underweight assets, or direct new contributions toward what is below target.
Tip: New-money rebalancing can reduce unnecessary selling.
3. Rebalancing forces disciplined buy-low/sell-high behaviour
It trims assets after relative strength and adds to assets after relative weakness, but the purpose is risk control rather than market timing.
Tip: Rebalancing is not a prediction strategy.
4. Use a rule instead of emotion
Review on a schedule or when weights cross defined bands. Consider taxes, exit loads and transaction costs before trading.
Note: Too-frequent rebalancing can create unnecessary cost.
5. Quick check
Your target equity is 60%, but after a rally it becomes 72%. What has happened?
Answer: B - The portfolio now carries more equity exposure than intended.