So what is rebalancing you ask? Well, rebalancing is making sure that you sare sticking with the investment plan that you are following.
What’s a good example of this? Lets say you created your asset allocation plan which again is the investment plan you are going to be following and for your money you think 60% of your money should be invested in stocks and 40% should be invested in conservative stuff like bonds and cash investments, so this is the investment plan you are following your asset allocation.
So what happens from here? At the end of the year you may come to realize that some investments maybe doing better or worse than the other therefor, rebalancing means your going to take small changes to move money from one type of investment maybe from a stock to a bond for example to redistribute your accounts so you get back to the 60-40 balance.
It’s simple: Rebalancing = Takes the emotion out of your investing decision.