WealthPortfolio rebalancing (definition)
Why rebalance
Left alone, a 60/40 portfolio can drift to 75/25 after a few strong years — riskier than intended. Rebalancing is a discipline that makes you sell high and buy low automatically, without emotion.
When to rebalance
- By threshold: when an asset class drifts more than 5 points from target;
- By calendar: once a year (simple and effective);
- Or both combined.
How, while minimizing tax
The most efficient way: rebalance with new contributions (buy the underweight class) rather than selling. In a non-registered account, selling triggers a taxable capital gain; favour rebalancing inside the TFSA/RRSP. An all-in-one ETF rebalances itself.
Frequently asked questions
How often should I rebalance?
Once a year, or whenever a class drifts more than 5 points from target. Too often creates needless fees and tax.
Does rebalancing boost returns?
Mostly it controls risk. The effect on returns is modest; the real benefit is avoiding drift into a too-risky portfolio.
Does an all-in-one ETF rebalance itself?
Yes. XEQT, VEQT, ZEQT and the like rebalance automatically inside the fund, with nothing for you to do.
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