One of the most popular mantras of index and passive investing is the famous phrase: “Buy and hold.” Many investors interpret this literally, assuming that once they select their initial index funds or ETFs, their only task for the next 20 years is to deposit money and completely forget about their broker’s screen.

However, there is one crucial exception to this rule of inactivity: portfolio rebalancing.

If you never adjust your positions, the market will do it for you—and likely not in the way you want. In this article, we will look at the actual consequences of failing to rebalance your portfolio, how it impacts your risk level, and what history teaches us about the effects of asset drift.

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1. Understanding Asset Drift

When you design your investment portfolio, you select a combination of equities (stocks) and fixed income (bonds) based on your risk tolerance. For example, a classic balanced portfolio:

• 60% Equities (Stocks)
• 40% Fixed Income (Bonds)

Over the long term, equities tend to deliver a significantly higher average annual return than fixed income. Consequently, your stocks will grow at a much faster rate than your bonds.

If you let 5, 8, or 10 years pass without making any adjustments, the weight of your stocks will increase naturally. Your balanced 60/40 portfolio could gradually morph into an 85% stock and 15% bond split. This phenomenon is known as asset drift.

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2. The Three Consequences of Failing to Rebalance

Allowing your portfolio to drift unchecked has serious implications for your financial well-being:

Consequence A: Your Risk Profile Creeps Out of Control

The problem with your portfolio shifting from 60/40 to 85/15 is not the theoretical return (which will likely be higher during a bull market), but that you no longer hold the portfolio designed for your risk tolerance.

If you chose to hold 40% in fixed income, it was because you could not tolerate severe drawdowns or because your investment horizon was not extremely long. By drifting to 85% equities, your portfolio has become highly volatile and risky without you consciously deciding to make it so.

Consequence B: You Suffer Devastating Losses During Market Crashes

The true danger of asset drift is exposed when a stock market crash hits (such as the dot-com bubble in 2000, the financial crisis of 2008, or the COVID-19 crash in 2020).

Suppose the stock market drops by 40%:

• If you had rebalanced and maintained your 60% stock target, the overall drop in your portfolio would be moderated by your 40% bond cushion, which typically remains stable or even rises during crises.
• If you did not rebalance and allowed stocks to climb to 85% of your portfolio, the crash will hit your capital much harder. Under severe market stress, you are far more likely to panic and make the ultimate mistake: selling your funds at the absolute bottom.

Consequence C: You Miss the Opportunity to “Buy Low, Sell High”

Rebalancing acts as an automatic, disciplined mechanism to sell overvalued assets and buy temporarily undervalued ones.

If you don’t rebalance, you forfeit the extra return generated by buying more shares of your equity index funds when they are cheap (for example, right after a market crash) using the proceeds from bonds that held their value.

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3. What Does History Teach Us?

Let’s look at how this played out in a real-world scenario: the bear market of the 2008 financial crisis.

Imagine two investors who started with a balanced 60/40 portfolio in 2003:

• Investor A rebalanced annually: In 2008, when the subprime crisis hit, their portfolio took a hit, but systematic rebalancing forced them to sell bonds (which were trading high) to buy stocks (which were at multi-year lows). When the market recovered sharply starting in 2009, Investor A’s portfolio bounced back with impressive speed.
• Investor B never rebalanced: By 2008, their portfolio had drifted naturally to an 80/20 allocation due to the stock gains of the preceding years. When the crash hit, their losses were dramatic. Because they lacked sufficient bond reserves to buy cheap equities, their portfolio took years longer to fully recover.

What the real 2010–2026 data says

The story above is illustrative. These numbers are not: they come from simulating an 80/20 portfolio on real market series since January 2010, with and without annual rebalancing.

Metric	Never rebalanced	Rebalanced yearly
Initial capital	10,000 €	10,000 €
Final value	45,991 €	42,517 €
Annualised return (CAGR)	9.64%	9.12%
Maximum drawdown	24.63%	23.49%
Final equity weight	93.6%	81.5%
Peak equity weight reached	93.6%	83.3%
Number of rebalances	0	16

How to read these numbers

Never rebalancing ended with 3,474 € more, but with a portfolio that was no longer a 80/20: equities had drifted up to 93.6%, 12.1 points above the rebalanced portfolio. Over a stretch this good for stocks, letting equities run pays more. What rebalancing buys you is not return: it is staying at the risk level you chose.

Methodology

• Source: Yahoo Finance (monthly adjusted closes, dividends reinvested) — ACWI (iShares MSCI ACWI ETF (renta variable global)) y BND (Vanguard Total Bond Market ETF (renta fija)).
• Aportación única inicial, sin aportaciones periódicas posteriores.
• Rebalanceo anual al cierre de diciembre en el escenario rebalanceado.
• Sin comisiones de compraventa, custodia ni impacto fiscal.
• Cierres mensuales ajustados: los dividendos se consideran reinvertidos.
• Reproducible with: npm run backtest
• Raw data (JSON): /data/backtest-8020.json
• Data downloaded on: 2026-07-28

The uncomfortable finding is that not rebalancing produced more money over this particular stretch, and we would rather say so than hide it: these are more than sixteen unusually good years for equities, and letting the stock sleeve run pays off when stocks barely stop climbing.

What the table does reveal is the underlying problem. The portfolio that was never rebalanced ended up almost 94% in equities. Whoever designed it picked an 80/20 because that was the risk they could live with, and they ended up holding a portfolio that was no longer theirs, without ever making a decision. The maximum drawdown of the two scenarios barely differs, but for a reason worth understanding: the period starts after the 2008 collapse, and none of the later corrections caught the portfolio at its point of maximum drift. The next one might.

Put another way: rebalancing is not a strategy for making more money, it is the price of staying invested at the risk level you chose. If you expected the table to say the opposite, that is exactly the misconception worth clearing up.

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4. How to Prevent Drift Without Obsessing

You don’t need to rebalance your portfolio every week or month; doing so too frequently will only generate unnecessary transaction costs or tax events (depending on your country’s regulations).

Most Bogleheads recommend one of two simple approaches:

1. Calendar-Based Rebalancing: Choose one or two dates a year (for example, every January and July) to review your portfolio and make the necessary adjustments.
2. Drift-Threshold Rebalancing (The 5% Rule): Check your portfolio periodically. If any major asset class deviates by more than 5% from its target weight (e.g., a fund that should be 30% shifts to 36%), it’s time to rebalance.

Track Your Portfolio Deviations with CoreBalance

To see if your portfolio needs an adjustment without spending time running manual calculations, you can use CoreBalance.

Our free, interactive calculator visually analyzes the exact level of drift for each of your assets. If you choose to rebalance, it calculates down to the penny whether you can accomplish this simply by directing your monthly savings to the lagging assets (avoiding sales), or if you need to perform transfers. All of this is done with complete local privacy on your device.