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Rebalance after a market decline only if your portfolio has drifted from an allocation that still fits your goals, time horizon, finances, and risk tolerance. Rebalancing means restoring that target—not predicting that stocks will rebound or automatically buying them because prices fell.
Should you rebalance after a market decline?
A decline can change your portfolio’s mix. If stocks fall more than bonds, for example, stocks may make up less of the portfolio than your target specifies. Rebalancing can bring the mix back toward its intended risk level. The U.S. Securities and Exchange Commission’s Investor.gov guide describes the process as cutting back on current “winners” and adding to current “losers”—an approach that can amount to selling high and buying low. That is an explanation of the mechanics, not a promise that a declining asset will recover.
Before making trades, ask whether the target allocation still suits you. A market fall alone is not a reason to change it; a changed goal, time horizon, financial situation, or capacity or willingness to take risk may justify reviewing the target. Fidelity advises investors to avoid reacting to each market move and to keep the investment mix aligned with their circumstances (Investment mix during a market downturn).
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How to rebalance, step by step
1. Check the target allocation
Find the allocation your plan is intended to maintain across broad asset categories, such as stocks and bonds. If your goals or circumstances have changed, review the target before attempting to restore it. Do not raise your stock allocation simply because stocks have fallen.
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2. Compare your current mix with the target
Look at the percentage of your portfolio held in each broad category, rather than judging the decision by one holding’s dollar value or recent performance. Compare those percentages with the target to identify which categories are overweight and which are underweight. Investor.gov explains that allocation drift can leave a portfolio misaligned with its goals and risk level (Asset Allocation and Diversification).
3. Choose how to close the gap
You can sell some of an overweight category and buy an underweight one, direct new contributions to underweights, or use both approaches. Contributions may reduce the amount you need to sell. The SEC outlines these methods and advises considering taxes and transaction fees before choosing (Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing).
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4. Set a repeatable trigger
Choose a rule so the next decision is not driven by the latest headline or the emotion of a downturn. Common approaches include:
- Calendar review: Check the allocation on a set schedule, such as annually.
- Threshold review: Rebalance when a category moves beyond a preset amount from its target. Fidelity gives a 5-percentage-point deviation as an example, not a rule for every investor.
- Hybrid review: Review on a calendar schedule and act when the allocation has crossed your chosen threshold.
Fidelity describes these approaches and gives once-a-year reviews and a 5-percentage-point deviation as examples (Rebalancing your investments, published May 5, 2026). No single schedule or threshold is established as right for everyone.
5. Check taxes and trading costs before placing orders
In a taxable account, selling may realize a capital gain or loss. Tax consequences depend on the account and the specific transaction, so do not assume rebalancing is tax-free. Transaction fees can also reduce the value of frequent adjustments. Directing contributions toward underweight categories may help limit the need to sell, though it may not close the entire gap.
Tax-loss harvesting is a separate strategy that may be relevant to some taxable investors during a decline; it is not a required rebalancing step or, by itself, a reason to trade. Fidelity discusses it as a possible consideration (Portfolio management: What it is and how to do it). These general guidelines do not determine whether a particular trade is appropriate for your tax situation.
6. Apply the rule and record it
Once you have selected a method consistent with your plan, follow it consistently. Note your target, review date or threshold, and how you will account for contributions, taxes, and fees. Revisit the policy at a planned interval or when a meaningful life change affects your goals or ability to bear risk.
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| Approach | How it works | Costs and trade-offs |
|---|---|---|
| Sell and buy | Sell overweight assets and purchase underweight categories. | Can restore the target directly, but selling in a taxable account can realize gains or losses; trades may also incur fees. |
| Use contributions | Direct new money toward underweight categories. | May reduce selling and its tax consequences, but may take time or be insufficient to restore the target. |
| Combine both | Use contributions to narrow the gap, then trade if needed. | Balances the two methods; the tax and transaction-cost effects depend on the specific account and trades. |
A calendar trigger is easier to plan, while a threshold trigger responds to the size of the drift rather than a date. A hybrid combines a scheduled check with a preset drift limit. The best fit depends on how much oversight you want and the costs and taxes involved; the cited guidance does not identify a universal winner.
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Can rebalancing be automated?
Target-date funds and robo-advisers are options for investors who do not want to manage rebalancing themselves. They can automate portfolio management, but they do not remove the need to decide whether the investment approach fits your goals and circumstances. Provider features and fees vary; review the terms for any service you consider. Fidelity discusses target-date funds and automated management as possible options (Portfolio management: What it is and how to do it).
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