Rebalancing

Rebalancing is the act of trading a portfolio back toward its target allocation after drift, cash flows or a change of model.

Rebalancing sounds like a single decision and is actually four: whether to trade, what to sell, what to buy, and in what order across accounts. In taxable accounts the second question dominates, because the cheapest path back to target is frequently the most expensive one after tax.

Rules-based rebalancing exists to make those four decisions consistently rather than according to who is at the desk that morning.