The Dividend Cafe Rebalancing: Because Something Always Underperforms
Jan 30, 2026
A detailed look at portfolio rebalancing and why it matters for risk management. Practical steps for trimming winners and buying laggards to restore target weights. Discussion of asset-class and sector rotation and the behavioral benefits of staying disciplined. A clear take on tax considerations when trimming positions and when rebalancing may not be appropriate.
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Large-Scale Rebalance Example
- David L. Bahnsen described his firm's recent six-day rebalance that moved roughly $1.16 billion in trades.
- He used this real example to show rebalancing is a regular, large-scale practice they perform for clients.
Rebalancing Restores Intended Risk
- Rebalancing primarily restores a portfolio's intended risk-reward relationship rather than proving target weights are correct.
- It trims holdings above target weights and adds to those below to maintain the original allocation design.
Asset Classes Have Seasons
- Asset classes cycle in and out of favor even though they all can have positive expected returns.
- Rebalancing acknowledges those cycles and keeps a portfolio aligned with the investor's goals and comfort with volatility.