**Is It Time to Rebalance Your Portfolio After the Stock Market’s Big Gains?**
*By Pekic | E+ | Getty Images*
The stock market’s impressive run in recent years may have fattened your portfolio, but it might also have thrown your intended investment mix off balance.
While artificial intelligence (AI) stock valuations spurred a market decline on Tuesday, the major indexes are still well up this year, propelled by both AI-related and big technology stocks. Through Tuesday’s close, the S&P 500 index is up about 15.1%. Both the Dow and the Nasdaq have also posted double-digit gains for the year, roughly 10.6% and 20.9%, respectively.
These jumps come on the heels of outsized returns in 2023 and 2024. In fact, the S&P 500 has surged by about 90% since mid-October 2022. The Dow’s gain in that same period is about 61%, while the Nasdaq’s is roughly 126%.
Some experts view the market as overpriced, meaning they expect a correction at some point. Financial advisors say if you haven’t recently rebalanced your portfolio, now is the time.
### What Is Rebalancing and Why Is It Important?
Rebalancing restores your intended asset allocation—that is, how you divide your portfolio among stocks, bonds, and other assets.
Investors “should look at their risk exposure and review the purpose of the money and then sell down riskier areas of their portfolio,” said James Armstrong, president of Henry H. Armstrong Associates in Pittsburgh, which is ranked No. 14 on CNBC’s Financial Advisor 100 list for this year. “They could have too much in equities and not enough in safe assets,” Armstrong added.
### Don’t Let FOMO Lead to ‘a Dangerous Posture’
Suppose you built a portfolio with 60% stocks and 40% bonds. If you never rebalance, significant stock market returns could lead to that ratio shifting to more like 90:10 over time—a portfolio heavily weighted toward stocks, which come with more volatility and risk.
“I’ve been surprised by how many people are afraid to cut back their equity exposure because they’re afraid of missing out on upward gains, and that’s a dangerous posture,” Armstrong said.
For those in retirement or nearing it, there isn’t the luxury of time to recover from a prolonged down market like savers in their 20s or 30s.
“I wouldn’t let fear of missing out blind me to the possibility [of] a bear market,” Armstrong said. “I’d want to have some money in a safe place.”
Armstrong also emphasized the importance of considering how a 20% or 30% drop in the value of your portfolio would affect your life or future. “If it will matter, the time to take action is now while prices are high,” he said. “Take some money off the table and put it in a safe place.”
### How Rebalancing Benefits Investors
Advisors recommend having a rebalancing strategy—and sticking to it.
“Rebalancing takes the emotion out of it. It puts the client in a position where they have a systematic approach,” said Benjamin Offit, a certified financial planner based in Columbia, Maryland, and senior wealth advisor and partner for Composition Wealth of Los Angeles. “That enables them to unemotionally sell high and buy low.”
Rebalancing also allows you to profit from gains in outperforming investments while buying underperforming ones at lower prices.
Keep in mind, if you sell stocks held in a taxable account, gains on assets held for one year or less are subject to regular income tax rates. Profits on assets held longer than a year are considered long-term capital gains, which face tax rates of 0%, 15%, or 20%, depending on your income level.
Following a rebalancing strategy can also help with tax planning. If you rebalance before your positions drift too far from their target, you won’t incur a huge capital gain, Offit explained. In contrast, allowing a particular position to experience a massive run-up over time can make it harder to sell due to high embedded capital gains, potentially resulting in a large tax bill.
### How Often Should You Rebalance?
Many financial advisors recommend rebalancing your portfolio at least once a year, if not more often.
“I think a couple times a year or maybe more, look at your risk exposure and review what the goal is for the money,” Armstrong said.
Don’t wait for a market correction to rebalance. Taking action now can help protect your portfolio from unexpected downturns while keeping your investments aligned with your financial goals.
https://www.cnbc.com/2025/11/05/rebalance-your-portfolio.html