Asset allocation is the single most important factor determining your portfolio's long-term risk and return profile. However, as different assets grow at different speeds, your allocation will naturally drift over time. This is why systematic **portfolio rebalancing** is essential.
Without rebalancing, your portfolio can drift into a higher risk category. For instance, after a prolonged stock market surge, your stock allocation might swell from a target of 80% to 90%, exposing you to excessive downside. Rebalancing requires selling a portion of your winning assets and buying underperforming ones, forcing you to systematically buy low and sell high.
Implement rebalancing based on either calendar schedules (e.g. annually) or threshold rules (when drift exceeds 5%). Modeling this process inside a simulator ensures your retirement target remains insulated from market shifts.