Burt Malkiel: Rebalancing simply means that you’ve got a particular asset allocation. And when market prices change and, therefore, your portfolio has a different mix than your preferred asset allocation, that you simply rebalance, that is to say, bring the mix back to your preferred allocation. And, again, this is a wonderful technique because it forces you to do just the opposite of the mistakes that people make.
It is especially important for people who are investing for retirement, in that what they are going to do is they are going to keep the portfolio within a risk structure that they’re comfortable with. And it will force them, when there are bubbles in one asset class, to at least pare down those asset classes, and is likely to lead to a much higher investment pool, retirement pool, than you would otherwise get.
