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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →After stocks fall, first check whether your portfolio has drifted from the asset allocation you already chose. Rebalancing means bringing holdings back toward that target—not automatically changing the target or selling everything because markets are down. The right method depends on the size of the gap, available cash, account type, costs, and whether your financial plan has changed.
What rebalancing does—and what it does not do
Rebalancing restores a portfolio to an existing mix of investments. If stocks decline while bonds or cash hold steadier, stocks may become a smaller share of the total than your plan specifies. Rebalancing may then mean adding to stocks, trimming another category, or both.
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It is different from changing your target allocation. The SEC says a change may be appropriate if your goals, time horizon, risk tolerance, or financial situation have changed. A market decline by itself does not establish that the target is no longer suitable. Avoid making an all-in or all-out decision in reaction to short-term volatility; Lori Schock, former Director of the SEC’s Office of Investor Education and Assistance, wrote, “Remember, it’s time in the market that counts, not timing the market.” SEC Investor.gov: Is It Time to Rebalance Your Investment Portfolio?
Stocks can lose value, and declines do not follow a predictable recovery schedule. The SEC’s Investor.gov guide says large-company stocks as a group have lost money on average about one out of every three years; that is historical context, not a forecast for any particular holding or period. SEC Investor.gov: Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing
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How to check whether your portfolio has drifted
1. Revisit the target you chose
Find the allocation in your investment plan or account records. It might specify broad categories such as stocks, bonds, and cash, or break stocks and bonds into more detailed groups. Use the same categories for your target and current holdings. Do not assume a standard allocation applies to every investor.
2. Add up the relevant holdings
For each category, total its value across the accounts you are including in the plan. Use a consistent approach to categorizing investments, then add the value of all included categories to get the portfolio total. Looking at only one account can give a misleading picture if the target applies across several accounts.
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3. Calculate current percentages and compare
For each category, divide its current value by the total value of the portfolio and multiply by 100. Compare each result with its target percentage. For example, if stocks are below the target share, they are underweight relative to that target; another category may be overweight.
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1Clear out junk files and repair common Windows errors2Fix the driver behind crashes, sound loss and screen glitches3Repair Windows errors before they cause bigger problemsUse a threshold only if you have chosen one as part of your plan. There is no universal drift percentage that tells every investor when to trade. The SEC describes both calendar reviews and rebalancing when allocations move beyond predetermined thresholds. SEC Investor.gov: Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing
Choose a rebalancing method
| Method | How it works | What to weigh |
|---|---|---|
| Redirect new contributions | Put upcoming deposits toward categories that are below target. | Usually avoids selling, but depends on having contributions to invest and may take time to close a large gap. |
| Use available cash | Invest cash already in the portfolio in underweight categories. | Can address part of the gap without selling other investments; the amount of cash available may be too small to restore the target. |
| Sell and reinvest | Sell some holdings in overweight categories and use the proceeds to buy underweight categories. | Can change the allocation more directly, but sales may involve transaction costs and taxable gains in a taxable brokerage account. |
These approaches can be combined. The SEC and FINRA describe directing new money to underweighted investments or selling and buying holdings to restore the mix. SEC Investor.gov: Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing FINRA: Asset Allocation and Diversification
Before trading, consider whether your investments within each category still fit your plan, not only whether the broad category percentages line up. No particular security or fund is established as the right purchase for every investor.
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Check taxes and costs before placing trades
A sale in a taxable brokerage account may create a taxable gain or loss. Account type and individual circumstances affect tax treatment, so do not assume that every account or transaction is treated identically. Fees, sales charges, and other transaction costs can also reduce the value of a portfolio. Compare those costs with the benefit of correcting the allocation; using contributions or cash may reduce the need to sell. The SEC and FINRA both flag fees and tax implications as considerations in rebalancing.
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Set a review rule for next time
Choose a review approach in advance rather than reacting to every market move. Common options include:
- Calendar review: Check the allocation on a set schedule, such as during an annual review. FINRA says investors may want to consider whether to rebalance once a year as part of an annual investment review; it is an option, not a universal requirement. FINRA: Asset Allocation and Diversification
- Threshold review: Check whether a category has moved beyond a predetermined amount or percentage from its target, and rebalance if your rule calls for it.
- Hybrid review: Review on a schedule and also act if a chosen threshold is crossed. Fidelity describes this as one possible approach, while cautioning against rebalancing too frequently. Fidelity Viewpoints: Rebalancing your investments, May 5, 2026
None of these schedules is established as best for everyone. Frequent adjustments can mean unnecessary trading, costs, or tax consequences. A target-date or lifecycle fund is another approach: the fund manages allocation and rebalancing, but you still need to choose a fund that fits your goal and understand its investment approach. SEC Investor.gov: Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing
When a stock decline also calls for a plan review
If the decline has exposed a genuine change in your circumstances—such as a different time horizon, goal, risk tolerance, or financial situation—review whether the target itself still makes sense rather than treating rebalancing as a substitute for that decision. Fidelity also advises considering overall financial security and emergency savings when reviewing a plan. Fidelity Viewpoints: Guide to stock market dips and downturns, July 30, 2026
The guidance cited here is general U.S. investor education, not individualized investment or tax advice. Investors outside the United States should use information that applies to their jurisdiction.
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