Over time, your asset-allocation policy can veer off track because of market ups and downs. This is illustrated quite clearly in the attached image; a strong stock performance can use a simple 50/50 portfolio mix to become unbalanced over time. After 30 years, what was once a 50% allocation to stocks now sits at 66%—quite a jump. Moreover, not only does the portfolio’s allocation change, but the portfolio’s risk also changes, rising sharply from 9.1% to 11.4%. If your needs and/or risk tolerance have not changed, your allocation shouldn’t either.
But why would anyone want to sell investments that have done great in order to purchase laggards? While rebalancing might seem odd at first, it is all about risk control. If more and more of your total portfolio winds up in one investment, you risk losing a lot should that investment stumble.