Over time, the value of all the different components of your investment portfolio will change in value – some will go up faster than others, and at some times they will go down. Portfolio rebalancing is when you reset your asset allocations to bring them back in line with your intentions – locking in profit of the components which have outperformed, and making sure your portfolio is not accidentally “overweight” in certain areas.
For example, if you wanted to allocate 10% of your total portfolio to a certain fund, sector, or geography and it does significantly better than the other parts of your portfolio, you might discover that you’ve actually now got 20% (or any other amount) of your portfolio invested into that certain fund, sector, or geography. Rebalancing your portfolio is when you re-allocate your assets in accordance with the financial plan you’ve built, to make sure it stays on track. This is particularly important if you are following a recommended strategy, such as the ones suggested by Investors Trust here: https://www.investors-trust.com/products/fund-platform/fund-strategies/
To keep the strategy optimised, you’ll need to regularly – not necessarily frequently, but certainly don’t leave it too long without checking it – rebalance your portfolio to make sure it stays in line with the strategy that you’ve either built, or chosen to follow. If you don’t, then you’re not actually following that strategy at all, because your asset allocation is gradually changing away from your original planned strategy as time rolls on and values change.
An optimum strategy would be to pick an interval you’re comfortable with – perhaps monthly, quarterly, or half-yearly – to check your current asset allocation, and reset it if it’s more than a couple of percent away from your original plan. You can do this up to 15 times per year, at no cost.