The Hidden Danger of Drift: Why Rebalancing is Non-Negotiable

Portfolio rebalancing is often misunderstood by retail investors as a tool to boost returns. In reality, its Core purpose is risk control and enforcing disciplined investment behavior. A defined asset allocation reflects an investor's goals, time horizon, and risk tolerance—deviations from this blueprint can lead to unintended consequences.

Index fund portfolios, despite their passive nature, are prone to relentless drift. Differential returns across asset classes—equities, fixed income, REITs—cause holdings to stray from target allocations. A tech-driven bull market, for example, could inflate a 60% equity allocation to 75%, distorting the portfolio's risk profile.

Unchecked drift invites 'risk creep.' Outperforming (and often riskier) assets dominate the portfolio, exposing investors to greater downside when markets correct. Rebalancing isn't about chasing gains—it's about maintaining the guardrails that keep portfolios aligned with long-term objectives.