Suppose you decide to split your money between shares and steadier assets in a particular proportion. As markets move, the better-performing part grows faster and gradually takes up a larger share of your portfolio than you intended. Without noticing, you can end up taking more risk, or less, than you planned. Rebalancing brings the proportions back into line, usually by trimming what has grown and topping up what has lagged.
This has a useful side effect. Because it involves selling some of what has risen and buying more of what has fallen, rebalancing gently pushes you to sell high and buy low, which is the opposite of the emotional habit of chasing winners. It imposes a simple discipline rather than relying on you to judge the market.
Rebalancing does not need to be frequent. Many long-term investors review their mix once a year, or when it has drifted a long way from the target, rather than reacting to every move. The aim is to keep your portfolio aligned with your goals and comfort with risk, not to trade constantly.
This content is general information, not investment advice.