How often should I rebalance my portfolio?

Rebalancing is the discipline of selling some of what has grown and buying more of what has shrunk, to keep your portfolio at its target allocation. Without it, a 60/40 portfolio that does well can quietly drift to 75/25 — and your risk profile changed without you deciding to change it.

Vanguard’s 2010 study tested annual, quarterly, monthly, and threshold-based rebalancing across simulated US, UK, and Australian market data. The finding that has held up since: quarterly rebalancing is marginally more efficient than annual or monthly, but the difference in returns is small — typically a few basis points a year. Transaction costs and tax friction can erase that advantage entirely for taxable accounts. The Vanguard follow-up paper on threshold-based rebalancing reached the same conclusion: rebalance when any asset class drifts more than 5 percentage points from target, regardless of the calendar, performs about as well as quarterly.

So the practical answer is: annual or threshold-based, depending on your personality. Pick annual if you want the simplest possible workflow — set a December reminder, sell what’s overweight, buy what’s underweight, done. Pick threshold-based if you actually look at your portfolio during the year — most brokerage apps will alert you when an allocation drifts 5%+.

The Pincus Family Office story in the David Weisburd episode is a different argument, not a contradiction. A multi-billion-dollar family office with concentrated positions, illiquid assets, and a 30-year time horizon can rationally choose not to rebalance. Letting winners run works when (a) you can stomach the volatility, (b) your winners are quality compounders, and (c) you have access to leverage if you need liquidity without selling. None of those three conditions usually apply to a normal retail investor’s 401(k).

For most people, the right rebalancing rule is “every year, or whenever something drifts more than 5%, whichever comes first.” That single rule, followed consistently, captures nearly all the discipline benefit without adding complexity. The worst outcome is not picking the wrong cadence — it’s never rebalancing at all and discovering a decade later that your “diversified” portfolio is 80% in one tech stock you forgot you owned.