The Portfolio That Decides for You
Imagine you built a 60/40 portfolio: 60% stocks, 40% bonds. Clear decision, clear plan. Then you leave it alone for a few years.
Stocks outperform, as they often do. Your 60/40 quietly becomes a 70/30. Nobody made that decision — no meeting, no review, no conscious choice. The market simply decided that your portfolio would now carry meaningfully more risk than you agreed to take.
That is drift. And it is the reason rebalancing exists.
Calendars Are an Honest Starting Point
The simplest approach is calendar-based: pick a date (once a year, twice a year, quarterly) and force every position back to its target weight.
Annual works. It is mechanical, cheap, and easy to defend. Its weakness: it rebalances even when nothing drifted, and it can miss a fast move in between checkpoints. Still, research from firms like Vanguard finds the practical differences between calendar and threshold approaches are small. Calendars are fine; they just are not precise.
Bands Are the Smarter Signal
Rules-based rebalancing uses drift itself as the signal. The common guidance:
- Set a band around each target weight — typically 5 percentage points for a major position. On a 60% equity target, that means: rebalance only when stocks reach roughly 65% or fall to 55%.
- For small positions, use relative drift — the "5/25 rule": a 5-point band for anything you hold near its target, and a 25% relative band for lighter allocations. A 10% position triggers at around 12.5%.
- When a band is crossed, trim the over-weight asset back to target and add to the laggard. You are mechanically buying low and selling high.
The elegant part: in most years a band plan tells you to do nothing. That is a feature. A portfolio that has not drifted does not need surgery.
What Rebalancing Actually Buys You
Rebalancing is not a return booster. In most studies its contribution to returns is modest and irregular. What it reliably buys is three things:
- Risk control — the drift that grows your risk unknowingly gets cut on a schedule.
- Contrarian discipline — rebalancing forces you to trim what is expensive and buy what is unloved, which is the hardest trade and the correct one.
- A decision rule — you stop guessing; the band tells you when to act.
The Singapore Tax Note
In Singapore, this is easier than in most markets: individuals are generally not taxed on capital gains. The Inland Revenue Authority regards gains from genuine long-term investing as capital in nature — taxable only if your activity amounts to a business of trading.
That matters for rebalancing in two ways:
- Selling overweight winners does not create a tax bill for the typical long-term investor, so you can rebalance freely rather than deferring for tax reasons (a real constraint in, say, the US).
- The line blurs only if you trade frequently enough to look like a trader, in which case gains can be treated as income. Annual band-based rebalancing is nowhere near that threshold for most people.
Note also that SG dividends are generally not taxed thanks to the one-tier system, and your only recurring costs are brokerage fees — which is another reason band-based rebalancing (few trades) tends to do well here.
Make It Mechanical
- Write down the targets — your current asset allocation from the plan should be documented.
- Set the bands — 5 percentage points on major positions, 25% relative on the rest.
- Add a yearly checkpoint — not to force trades, just to measure drift and confirm no band was crossed months ago.
- Rebalance with contributions where possible — direct new money into the lagging asset before selling anything. Fewer trades, fewer fees.
The Takeaway
Not rebalancing is not "staying the course" — it is letting the market set your risk with no input from you. A band you defined in advance is the cheapest insurance you will ever buy: it caps the risk you agreed to carry and makes selling winners at the right moment a rule instead of a leap.
Tax note is informational and current as of September 2026 — confirm your situation with IRAS, and this site is not investment advice.