What Is Rebalancing? We Explain
Rebalancing is smart because it reduces your risk exposure by maintaining your desired asset allocation. To make your life simpler, we do it for you—automatically.
Rebalancing prevents you from making the classic behavioral mistake of buying high and selling low.
At Betterment, we automatically rebalance your account so you never have to worry about doing it yourself.
What is rebalancing?
Rebalancing is recognized as smart practice in investing. It realigns your portfolio back to its original asset allocation. A portfolio is rebalanced by selling “extra” stocks and buying more bonds to recreate your original stock/bond ratio. A portfolio is rebalanced by selling “extra” stocks and buying more bonds to recreate the original stock/bond ratio.
At Betterment, we rebalance your portfolio dynamically, efficiently and automatically as you invest. Every time you receive a dividend or deposit more money, we invest it into the part of the portfolio that needs rebalancing. For the most part, this negates the need to sell stocks or bonds to balance out the portfolio. It’s an extremely tax efficient way to rebalance.
For example, when you signed up for Betterment you may have decided that the right allocation for you is 60% stocks/40% bonds. If stocks perform well during a certain period, your portfolio allocation might move to 65% stocks/35% bonds. Inadvertently, your investment is now exposed to more risk (especially if this compounds over time to create an even larger allocation gap). So we take your new deposits or dividends and use them to top up the part of your portfolio that has moved out of balance.
Why is more risk a bad thing? Because when you set your original allocation, you did so with a particular goal in mind. A shift in allocation might make it difficult for you to reach your goal in your desired time frame because suddenly, your investment will be more susceptible to market volatility.
The Best Part
Rebalancing prevents you from making the classic behavioral mistake of buying high and selling low. It takes emotion out of the equation because you adjust your portfolio to its original state, regardless of whether the market’s up or down (remember, it’s all about the long game).
We know how hard it is to align “should do” with “do,” so we’ve automated this in your Betterment account. And because Betterment doesn’t charge for automatic rebalancing transactions, this feature costs you nothing.
Get Started with Betterment
Betterment handles your investments so you don’t have to. We make it easy to roll over your retirement accounts (or get new accounts set up), and everything we do is designed to help you achieve your long-term investment goals in the most tax-efficient way possible.
You can also easily sync your outside investment and retirement accounts so we can give you better advice around your entire financial picture. Our customer support team is available seven days a week to answer any questions. Get started today.
More from Betterment:
How’d the Market Do? That’s Harder To Answer Than You Think
In taxable investing, your after-tax return—the amount you “take home”—is what’s important. Yet far too many investors focus on market performance. Let’s look at the difference.
The Difference Between Vanguard and Betterment
I’ve been asked a lot in the last few months in the transition from my old role at Vanguard to my new role as Chief Growth Officer at Betterment – what’s the difference between the two companies?
Take on More Control with Flexible Portfolios
You may be an experienced investor who enjoys Betterment but would like to change aspects of our recommended portfolios. Enter Flexible Portfolios.
How would you like to get started?
Your first step toward a smarter investing future starts here.
Create a Betterment account
Go ahead and join the smart, modern way to invest.
See what we can do for you
Tell us a bit about yourself, and we'll show you the benefits of investing with us.
Get a free investing checkup
Help us get a sense of your investing approach and see how you could improve.
Transfer a 401(k) or an IRA
Move an existing retirement account into a Betterment IRA.
Download the mobile app
Enjoy the Betterment experience anywhere on the go.