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Rebalancing means buying and selling equities and fixed income, among other assets, to get back to the ideal mix of investments in a portfolio. But knowing how often or how much of the portfolio an investor should rejig can be tricky. 

“Typically, what happens is when you’re invested, the holdings within the portfolio will drift with time, as the market does,” said Devin Cattelan, portfolio manager at Verecan Capital Management.

For example, if a portfolio is comprised of 65 per cent stocks and 35 per cent fixed income, the balance can shift to 75 per cent stocks as equities rise, diminishing the fixed income portion.

Rebalancing, in this case, would mean selling some equities and adding to fixed income, Cattelan said. 

When investors don’t rebalance their investments regularly, it’s likely they will end up with a more risky portfolio than they anticipated, he said. 

If an investor bought shares in TD Bank and Amazon at a 50-50 portfolio balance a decade ago and never rebalanced it, for example, the investment proportions are going to look very different today — with Amazon taking over a large percentage of the portfolio because its share price grew more than the bank’s did. 

The investor is now more exposed to Amazon’s performance, which represents more than the initial 50 per cent holding.

“You’ll get more volatility in your portfolio than what you were originally intending,” Cattelan said. “It could just potentially not align with what your goals are at that time in the future.”

Investors can generally rebalance their portfolio in two ways: strategic and tactical. 

A strategic rebalance is more of an automated process, bringing the portfolio back in line on a yearly basis or when there seems to be a drift of more than five to 10 per cent from the target asset allocations — whichever metric an investor has set for themselves, Cattelan said. 

Tactical rebalancing is more about capitalizing on market conditions.

For instance, if an investor thinks equities are going to outperform bonds in the next two years, they would tilt the portfolio more toward stocks to leverage the market.

Generally, experts say tweaking a portfolio should only happen once a year. A major shakeup should typically only happen with major life changes.

“At least once a year, you should be sitting back and thinking, ‘Do I need to tweak?’” said Tony Salgado, president at AMS Wealth. 

“Maybe the answer will be no, but you should at least be asking the question: Do we need to make any changes?”

If they’re modifying their portfolio allocations, investors should ask themselves the purpose of the changes, Salgado said. 

“Are you trying to, let’s say, sell a position that has already had a lot of gains, and you want to lock in that gain value?” Salgado said. “Then what do you do with those proceeds?”

Similarly, investors should see whether they’re incurring any losses, and determine if those losses can be used to offset any gains, he added. 

For example, if an investor sells a tech stock for a gain of $10, while incurring a loss of $8 when selling a bank stock, the net gain to report will be $2.

Investors should consider what the tax implications would be when tweaking the portfolio, Salgado said. If they’re making changes in a non-registered account, it could trigger a tax bill.  

Cattelan said rebalancing a portfolio more than once a year can risk overdoing it.

When investors over-rebalance their portfolio, transaction fees and capital gains taxes can eat into the profits, he said.

“There is not a lot of value-add,” Cattelan said. “It doesn’t, you know, improve returns significantly or decrease risk significantly if it happens too often.”

For investors who pin their rebalancing decisions on market moves, it may call for a rebalance whenever a major swing occurs, he said.

But the decision boils down to an investor’s comfort level.

“Review your asset allocation, review your mix of holdings and determine whether or not you’re comfortable with the weights at that time,” Cattelan said.

He said it’s about ensuring that the portfolio mix aligns with the investor’s objectives at that time. 

Salgado recalled a client who had about 90 per cent of the portfolio in high-growth equities, but when the investor turned 70, he suggested a major rebalance to protect the capital.

He recommends investors speak to a professional before shaking up a portfolio aggressively.

“Not every 40-year-old is created equal,” Salgado said. “You could be in the exact same income situation as your neighbour, but you may have a very different risk appetite.”

This report by The Canadian Press was first published Sept. 16, 2025.