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Finance Dictionary

Rebalancing

Restoring a portfolio to its target asset allocation by selling what has grown beyond its weight and buying what has fallen below. It enforces selling high and buying low mechanically, rather than by judgement.

Example

A 60:40 equity-debt portfolio that drifts to 70:30 after a rally is rebalanced by selling equity and buying debt to return to 60:40.

Asset Allocation DiversificationRisk Tolerance