In wealth management, what does "rebalancing" mean?

Rebalancing in wealth management refers to the process of adjusting the proportions of different assets in a portfolio to maintain an intended asset allocation. Over time, as the values of different investments fluctuate, the original allocation can drift due to varying rates of return among the assets. For example, if equities perform exceptionally well, they may represent a larger portion of the portfolio than originally intended, leading to increased risk.

By rebalancing, an investor can restore the desired allocation, which helps manage risk and aligns the portfolio with the investor's financial goals, risk tolerance, and investment strategy. This process often involves selling some of the over-performing assets and buying more of the underperforming ones to bring the portfolio back to its target allocation. This disciplined approach helps in maintaining a balanced risk profile and can also take advantage of market opportunities.

In contrast, simply increasing the total number of assets or creating a new portfolio does not directly address the management of existing asset proportions. Similarly, while buying and selling assets could relate to various strategies, it does not specifically convey the essence of rebalancing, which is fundamentally about maintaining intended asset proportions rather than seeking maximum profits.