What is mutual fund "portfolio balancing"?

What is mutual fund "portfolio balancing"?

Portfolio balancing or rebalancing is the process of bringing your portfolio back to its original asset allocation. If you have a good asset allocation strategy, you should expect, over short periods of time, some investments to be doing well and some to be doing poorly. The process of portfolio balancing is really going back to your original allocation. You're going to sell what's doing well and buy what's doing poor. You're selling high and buying low, which makes a lot of sense, and fundamentally that makes sense to us. Psychologically it can be difficult: "Well, this investment's doing so well. Why do I want to sell it and buy what's doing poorly?" The reasoning is that we're assuming that all of your investments are going to do really well over time, they just cycle through different up and down markets. What rebalancing is doing is allowing us not to have to call the timing aspect of when something is going to do well and when something is going to do poorly. It's just allowing us overall a broad, diversified portfolio to succeed over time.