Financial advisors suggest that the current market climate, marked by a global bond selloff, equities near record highs, and persistent geopolitical tensions, could present an ideal opportunity for investors to reassess their portfolio allocations. Rebalancing, often overlooked as a mundane yet powerful tool, is gaining attention as a practical strategy to realign investments with long-term goals.
Jude Boudreaux, a Certified Financial Planner and member of the CNBC Financial Advisor Council, highlights the value of this approach. He remarks that while it may be one of the least exciting investment concepts, it could also rank among the most beneficial for investors navigating today's complex markets. The practice involves adjusting an asset mix back to its original target, such as the classic 60% stock and 40% bond allocation, which may have drifted due to market movements.
How market shifts have skewed portfolios
Equities have historically served as the growth engine for portfolios, and recent years have delivered exceptional gains. The S&P 500 index posted annual returns of 24%, 23%, and 16% in 2023, 2024, and 2025 respectively, far exceeding the long-term average of roughly 10%. Even after a slight pullback from its August all-time high, stocks have surged over 11% since the start of 2026, fueled by enthusiasm for technology and artificial intelligence.
In contrast, bonds have experienced significant weakness during this period. Since the outbreak of the Middle East conflict in late February, a broad selloff has pushed global government bond yields to multi-year highs. Rising inflation concerns and mounting debt levels have raised government borrowing costs, leading to declining prices for long-term bond funds. This inverse relationship between bond prices and yields has resulted in tangible losses, with the iShares 7-10 Year Treasury Bond ETF falling over 4% year-to-date and the Fidelity Long-Term Treasury Bond Index Fund dropping more than 5%. The 10-year U.S. Treasury yield recently reached levels not seen since 2023.
These combined forces mean many investors now hold portfolios that are heavier in stocks than intended, inadvertently increasing their risk exposure. Cathy Curtis, another Certified Financial Planner and CNBC advisor, notes that equities now dominate most portfolios, not just those heavily tilted toward tech stocks. She points out that the market's gains have been widespread, leaving many allocations out of balance.
Key advantages of a disciplined approach
Beyond restoring portfolios to target risk levels, rebalancing offers several additional benefits. It allows investors to lock in profits from strong performers by shifting gains to other parts of the portfolio. Boudreaux describes this as a disciplined method of buying low and selling high, a fundamental principle that has proven effective throughout financial history.
In today's environment, this often means moving stock profits into bonds, thereby lowering equity exposure while increasing fixed-income positions. While some may hesitate to purchase bond funds given their current weak valuation, advisors emphasize that this presents an opportunity to acquire them at discounted prices. This mirrors the common advice to buy equities during downturns, applying the same logic to fixed-income assets.
Rebalancing also helps reduce emotional decision-making and the urge to time the market, which frequently leads to suboptimal outcomes. This is particularly relevant now, as investors face uncertainties that might tempt them to abandon stocks. Recent turbulence, including inflation worries triggered by oil prices surpassing $100 per barrel, has caused equity declines. Curtis highlights the many concerns weighing on investors, from geopolitical conflicts and a new Federal Reserve chair to election cycles, expanding fiscal deficits, and AI-driven disruption. Rather than trying to predict which factor will ultimately impact markets, she suggests using rebalancing to bring risk down to more sensible levels.
Not an exit strategy
Kamila Elliott, co-founder of Collective Wealth Partners and a CFP, cautions against confusing rebalancing with a wholesale shift to cash. She clarifies that investors are not being told to sell everything, stressing that this is not a massive liquidation. Instead, it is a time to ensure allocations align once again with personal risk tolerance, a measure of how much loss an investor can withstand.
For those nearing retirement, Elliott advises using market strength to rebalance some stock gains into cash accounts, which can then generate income during early retirement years to protect against potential equity declines. She recommends completing risk-tolerance questionnaires offered on the websites of major asset managers like Vanguard Group, Fidelity Investments, and T. Rowe Price to better understand personal capacity for loss. Participants in 401(k) plans can often access similar tools through their plan administrators.
Advisors also remind investors that rebalancing may carry tax implications, especially for taxable brokerage accounts. Unlike tax-advantaged retirement accounts such as 401(k)s and IRAs, buying and selling within taxable accounts can create tax burdens. Investors can opt to adjust allocations gradually over time or increase certain positions without selling other assets. Curtis emphasizes that hitting the target allocation does not need to happen all at once, noting that new cash flows, withdrawals, and tax-aware trades can also guide portfolios back to their intended mix.