Chart of the Day: The Impact of Rebalancing

Today’s chart from AllGen Financial’s "Maximizing Investments with a Rebalancing Strategy" illustrates a 25‑year simulation of a 60/40 portfolio to demonstrate the impact of rebalancing over time.

The dark line represents the rebalanced portfolio, while the yellow line reflects the un‑rebalanced approach. The data shows that un‑rebalanced portfolios can experience stronger gains during periods of market exuberance, such as the years leading up to 2000.

However, without periodic rebalancing, portfolios are prone to allocation drift, increasing exposure to equities or fixed income and elevating overall risk. As highlighted in the chart, the un‑rebalanced portfolio suffered significantly greater losses during the Global Financial Crisis, ultimately resulting in underperformance by the end of the period.

By contrast, regular rebalancing allows investors to systematically sell appreciated assets and redeploy capital into areas that may be attractively valued. If executed properly, rebalancing can help manage risk and support optimal performance.