Guides · Markets & investing
Rebalancing and the Glide Path
Left alone, a portfolio drifts. Winners grow into an ever-larger share until the mix you carefully chose has quietly become something much riskier, usually right before it matters.
Drift always points the same direction
Set a 60/40 mix and do nothing. Stocks outgrow bonds over a long bull market, so the stock share climbs on its own — 60 becomes 70 becomes 80, with no decision ever taken.
Notice the direction that always runs. Drift moves you toward whatever has recently risen most, which means you become maximally aggressive precisely after the biggest run-ups, and maximally conservative after crashes.
So a portfolio left alone systematically carries the most risk at the moments risk is least rewarded. That's not bad luck; it's arithmetic, and it's why 'do nothing' is a safe answer to most investing questions but not to this one.
You end up most aggressive right after the biggest gains — a risk level nobody chose.
Rebalancing, and the cheaper way to do it
Rebalancing means selling what has grown and buying what has lagged until the mix matches your target again. It feels wrong every single time — you are trimming your best performer to buy your worst — which is exactly why doing it on a schedule beats doing it when it feels right.
In a taxable account, selling can trigger capital gains, so the mechanical version has a real cost. Two ways around it: rebalance inside retirement accounts where sales aren't taxable events, or direct new contributions toward whatever is underweight and let the drift correct without selling anything.
The second method is the one most people should use by default. It rebalances continuously, costs nothing in tax, and requires no decision beyond where this month's contribution goes.
Target-date funds do all of this for you
A target-date fund holds a diversified mix, rebalances itself automatically, and gradually shifts from stocks toward bonds as its target year approaches. That gradual shift is the glide path.
For most people it is a genuinely excellent default, and its real advantage is behavioural: there's nothing to drift, nothing to decide, and no moment where you have to talk yourself into buying the thing that just fell.
Two things to know. Glide paths differ meaningfully between providers, so two funds both labelled 2065 can hold quite different mixes — worth a look before assuming the year is the whole specification. And a TDF can still lose money; it's a diversified portfolio, not a guarantee, and 2022 hit them like everything else.
Rebalancing restores your target mix by selling what grew and buying what lagged. Target-date funds automate this, plus a glide path toward bonds.