Rebalancing means adjusting your investment portfolio back to your original target mix of stocks, bonds, and other assets. Over time, some investments grow faster than others, which changes the percentages you own. Rebalancing involves selling some of your better-performing investments and buying more of the ones that have fallen behind.
You start with a plan to own 70% stocks and 30% bonds. After a year, stocks perform well and now make up 80% of your portfolio while bonds are only 20%. To rebalance, you would sell some stocks and use the money to buy bonds, getting back to your 70/30 target.
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