401(k) Investing Guide

401(k) Rebalancing: How to Keep Your Retirement Portfolio on Track

Over time, market gains and losses can shift the mix of investments in your 401(k). Rebalancing brings your portfolio back toward a chosen asset allocation, helping you manage risk and keep your investment strategy aligned with your long-term plan.

Asset allocation Interactive calculator Practical checklist

What is 401(k) rebalancing?

Rebalancing is the process of adjusting investments so your portfolio returns to a selected asset allocation. Your target allocation might include U.S. stocks, international stocks, bonds, and other investment categories available in your plan.

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Set a target allocation

Choose a long-term investment mix based on your goals, time horizon, financial circumstances, and comfort with risk.

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Review what changed

Market movements can cause one category to grow faster than another, leaving your actual allocation different from your target.

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Restore the intended mix

If appropriate, adjust holdings or direct future contributions to categories that are below target, subject to plan options and fees.

Rebalancing is not market timing. It is a way to maintain an intended portfolio structure rather than repeatedly changing investments based on predictions about what markets will do next.

401(k) rebalancing example

Suppose an illustrative portfolio starts with 60% stocks and 40% bonds. After a period of stronger stock-market performance, its allocation changes to 70% stocks and 30% bonds. The portfolio now has greater stock exposure than the original target.

Investment categoryTarget allocationCurrent allocationDifference
Stocks60%70%+10 percentage points
Bonds40%30%βˆ’10 percentage points
Total100%100%β€”

To restore the target, the investor could sell some stock holdings and buy bond holdings, or potentially direct future contributions toward bonds. The appropriate method depends on plan features, available investments, costs, and the investor's goals.

Illustration only: A 60/40 portfolio is not a universal recommendation. Your suitable allocation may be different, and the example does not predict investment performance.

401(k) rebalancing calculator

Enter your portfolio balance, current stock allocation, and target stock allocation. The calculator estimates how much would need to shift between stocks and bonds to reach the target in a simplified two-category portfolio.

Use your current account value.
Enter your current stock percentage.
Use a target you have selected for your own plan.
The second option illustrates a contribution-based approach, not a guaranteed timeline.
Current stock value$70,000
Target stock value$60,000
Estimated adjustment$10,000

A positive adjustment means the stock allocation is above the target in this simplified example.

The calculator assumes all non-stock holdings are one combined category, with no fees, taxes, market movements, trading restrictions, or other asset classes. Employer-plan trading rules may differ. In contribution mode, the figure represents the amount of current allocation drift, not the amount of new contributions needed or a time estimate.

Common 401(k) rebalancing methods

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Calendar-based

Review and rebalance at a set interval, such as annually or semiannually. This can make the process predictable and easier to maintain.

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Threshold-based

Review the portfolio when an asset category drifts beyond a chosen range from its target. This requires monitoring and a clearly defined threshold.

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Contribution-based

Direct new contributions toward underweight categories. This may reduce the need to sell existing investments, although it may not fully restore the target allocation.

There is no single schedule that is right for every investor. A consistent method can help reduce reactive decisions, but the appropriate review frequency depends on your circumstances and plan options. Avoid unnecessary changes simply because markets have moved in the short term.

How to rebalance your 401(k): step by step

1

Review your current holdings

Sign in to your retirement account and identify each investment, its balance, and the asset category it represents.

2

Identify your target allocation

Review your investment strategy and confirm whether your target remains appropriate for your goals and time horizon.

3

Compare target and actual

Calculate each category's current percentage and compare it with the target. Check for overlapping funds that may make exposure less obvious.

4

Choose an adjustment method

Consider available exchange features, future contribution settings, trading restrictions, and any relevant plan costs.

5

Confirm and document changes

Review the transaction or contribution instructions carefully, then confirm the changes have been processed.

6

Review on your chosen schedule

Use a repeatable process rather than constantly reacting to daily market news or short-term investment performance.

How often should you rebalance a 401(k)?

Some investors review their allocation once or twice a year; others use a threshold-based approach or rely on an eligible target-date fund to manage allocation changes automatically. These are approaches, not rules that guarantee better results.

ApproachPotential benefitWhat to consider
Annual reviewSimple and predictableAllocation can drift between reviews.
Semiannual reviewMore frequent check-insMay encourage unnecessary activity if applied without a clear plan.
Drift thresholdResponds when allocation moves outside a defined rangeRequires monitoring and a consistent threshold.
Target-date fundThe fund manager generally adjusts the fund's asset mix over timeReview the fund's glide path, fees, risk, and other holdings in your account.
Keep the process simple. If your plan offers a suitable target-date fund and you use it as your primary portfolio, the fund typically handles rebalancing within the fund. Holding additional investments alongside it may change your overall account allocation.

Common 401(k) rebalancing mistakes

Rebalancing based on headlines

Changing your portfolio whenever markets rise or fall can undermine a long-term plan. Use a consistent method rather than predictions.

Ignoring overlapping funds

Multiple funds can own similar securities. Look through fund descriptions and holdings where available to understand your actual exposure.

Forgetting new contributions

Even after rebalancing, future contributions may cause allocation drift if they continue to flow into the same categories.

Assuming risk disappears

Rebalancing can maintain an intended allocation, but it cannot guarantee positive returns or protect against all losses.

Frequently asked questions about 401(k) rebalancing

What does rebalancing a 401(k) mean?

It means adjusting your investment holdings to bring the portfolio back toward a chosen asset allocation. This may involve exchanging investments or changing future contribution directions.

Does rebalancing a 401(k) cost money?

It depends on your plan and investments. Some plans permit investment exchanges without a direct transaction fee, while other costs or restrictions may apply. Review plan disclosures and fund terms.

Can I rebalance my 401(k) without selling investments?

Sometimes. Directing future contributions toward categories that are below target can help move your allocation over time. It may not be enough to correct a large difference, and the speed depends on contributions and market performance.

Does rebalancing trigger capital gains taxes in a 401(k)?

Investment exchanges within a tax-advantaged 401(k) generally do not create current capital gains tax in the way selling investments in a taxable brokerage account can. Distributions from the plan may still be taxable under applicable rules.

Should I rebalance when the stock market falls?

A market decline can change your allocation, but it is not by itself a reason to abandon your plan. Compare your actual allocation with your target and follow a consistent strategy that reflects your goals and risk tolerance.

Do target-date funds rebalance automatically?

Target-date funds generally maintain and adjust the fund's internal asset mix according to their investment strategy and glide path. You should review the fund's objectives, fees, risk, and whether holding other investments alongside it changes your overall allocation.

Is rebalancing the same as changing my investments?

Rebalancing is a specific kind of investment adjustment intended to restore a target allocation. Choosing a completely different strategy or changing your target is a separate decision that should be considered deliberately.

What allocation should my 401(k) have?

There is no universally appropriate allocation. It depends on factors such as your time horizon, financial circumstances, other assets, and tolerance for investment risk. The examples on this page are educational and are not personalized recommendations.

Official investor education resources

Make your 401(k) allocation intentional

Understand your current investments, choose a consistent review method, and use your plan's tools to keep your portfolio aligned with your long-term goals.

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Financial disclaimer

This page is for educational purposes only and does not provide individualized financial, investment, tax, or legal advice. Asset allocation and rebalancing do not guarantee investment returns or prevent losses. Investment choices involve risk, including the possible loss of principal. Review your plan documents and investment disclosures, and consider a qualified financial professional if you need advice tailored to your circumstances.

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