The question
I picked a mix, say 60% stocks and 40% bonds. If I never touch it, does it stay that way?
The idea
- No. Each part grows at its own speed, so the weights move. When stocks rise faster than bonds, stocks become a bigger share of your money. That is drift.
- Rebalancing means trading back to your chosen weights: moving money out of what grew most and into what grew least. Its main job is to keep your risk where you chose it, not to raise your return.
Worked example
ETFIQ's benchmarks (lesson 1) include Strategic 60, 60% stocks and 40% bonds traded back to those weights every month, and Strategic 80, at 80% stocks.
Start with $10,000 on Dec 30, 2016: $6,000 in ETFIQ's Global Stocks benchmark (all in VT, a world stock fund) and $4,000 in its US Bonds benchmark (BND and AGG). Never trade. Each year, each part grows by its own calendar-year return. Benchmark returns are hypothetical: today's rules applied to past prices.
Year one, step by step. In 2017 stocks returned 24.49% and bonds 3.56%.
- Stocks: $6,000 × 1.2449 = $7,469
- Bonds: $4,000 × 1.0356 = $4,142
- Total: $11,612. Stock share: $7,469 ÷ $11,612 = 64.3%
One good year for stocks moved the mix 4 points. Carry on the same way:
| End of | Never traded: stock share | Never traded: value | Strategic 60 (rebalanced): value |
|---|---|---|---|
| 2017 | 64.3% | $11,612 | $11,571 |
| 2019 | 65.5% | $13,048 | $13,035 |
| 2021 | 71.3% | $16,543 | $16,299 |
| 2023 | 73.0% | $16,161 | $15,821 |
| 2025 | 78.0% | $21,562 | $20,268 |
By the end of 2025, the "60/40" portfolio was 78% stocks. Nobody chose that; it happened.
Did leaving it alone pay? Here, yes: $21,562 − $20,268 = $1,294 more, because stocks beat bonds in most of these years and the drifted mix held more of them.
What it cost in risk. A 78% stock mix behaves much like Strategic 80. Over the ten years to Oct 30, 2026, Strategic 80's worst fall was −28.15%, against −22.31% for Strategic 60. On $20,000, about where both portfolios ended: $20,000 × 28.15% = $5,630 lost, against $20,000 × 22.31% = $4,462. The drifted portfolio carried the risk of a mix its owner never picked.
The common mistake
"Rebalancing is a way to earn more." Sometimes it does, often it doesn't. In this decade, leaving the mix alone ended $1,294 ahead, because stocks mostly won. Rebalancing's reliable effect is on risk: it keeps the mix you chose, so your worst year looks like the one you planned for.
A second mistake: rebalancing so often that trading costs and taxes eat into returns. Selling in a taxable account can create a tax bill, so your calendar or band has a cost too.
Check your understanding
Pick an answer to see why. Two of three right passes the lesson.
1. You start at 50% stocks and 50% bonds. Over a year stocks rise 20% and bonds 0%. What is your stock share now, before rebalancing?Answer: B. About 55%. $5,000 × 1.20 = $6,000 in stocks; $6,000 ÷ $11,000 = 54.5%. Not C: stocks grew 20%, but the share rises less because the total grew too.2. What is rebalancing's main job?Answer: B. To keep your risk at the level you chose. It holds your weights, so your swings match your plan. Not A: in this lesson's decade, leaving the mix alone ended with more money.3. A portfolio built at 60% stocks has drifted to 78%. Going by the benchmarks, how does its likely worst fall compare with the original plan?Answer: C. Deeper, closer to an 80% stock mix's. Strategic 80 fell 28.15% at its worst, against 22.31% for Strategic 60. Not A: more stocks means deeper falls, as lesson 1 showed.
Takeaways
- Check your stock share at least once a year; it drifts toward whatever grew fastest.
- Rebalancing keeps the risk you chose; it is not a return booster.
- Pick a rule, a calendar or a band, and write it down before markets move.