LOADING
The process of realigning the weightings of portfolio assets back to a target allocation by buying or selling securities periodically.
Over time, market movements cause portfolio allocations to drift from their targets. If you start with 60% stocks and 40% bonds, and stocks outperform, you might end up at 70/30. Rebalancing sells the outperformers (stocks) and buys the underperformers (bonds) to return to 60/40. This is a disciplined form of "buy low, sell high." Common approaches include calendar rebalancing (quarterly or annually) and threshold rebalancing (when any asset class drifts more than 5% from its target). Studies show rebalancing can reduce portfolio volatility by 0.5-1% per year without significantly impacting long-term returns.