Rebalancing

Rebalancing is periodically resetting a portfolio back to its target weights — selling what grew, buying what lagged — on a fixed schedule.

Left alone, a portfolio drifts: winners grow into an outsized share of the book and the original plan quietly changes. Rebalancing restores the intended weights on a set calendar — monthly, quarterly — which is what keeps a rules-based strategy actually following its rules.

Rebalancing is not free: each reset trades, and each trade pays costs and can trigger tax. Rebalancing more often than necessary mostly enriches your broker and the tax authority, so the schedule is itself a design choice the backtest should price in.

Definitions are educational and consistent with Thuztra’s backtest methodology. Backtests are research, not investment advice; past performance does not predict future results.