What is portfolio rebalancing?

You start with $10,000: 60% in a stock fund ($6,000) and 40% in a bond fund ($4,000). A year later the stock fund has grown to $8,000 and the bond fund is still $4,000. Your mix is now about 67% stocks and 33% bonds, more risk than you planned.

To rebalance, you sell $800 of the stock fund and buy $800 of the bond fund. That leaves $7,200 and $4,800: 60% and 40% of $12,000 again.

JagSim has no automatic rebalancing: you rebalance with your own sell and buy orders, as you would at most brokers. Portfolio shows what each holding is worth, and the sector and size picture on the Research page shows your largest industry and largest holding on Free, and every industry and every holding on Pro. JagSim charges no fees and does not work out tax, so a real account's costs of rebalancing do not show up here.

Prices move a portfolio away from its plan without you doing anything. Rebalancing is how you keep the risk you chose, rather than the risk the market drifted you into.

How often do people rebalance?

Two common ways: on a calendar, such as once a year, or when a holding drifts a set amount from its target, such as 5 percentage points. Each has trade-offs in costs and taxes.

Does rebalancing increase returns?

Not necessarily. Its main aim is to keep risk where you planned it. In a long rise, selling what has gone up can lower returns.

Does rebalancing have costs?

In a real account it can: fees, the bid-ask spread, and tax on gains when you sell in a taxable account. Adding new money to the smaller holding avoids selling.

What is drift?

How far your holdings have moved from their target mix because some rose and others fell.