Remember, if you’re rebalancing a taxable investment portfolio — by selling investments that have increased in value — to buy investments that have grown more slowly, you’ll owe capital gains tax on the profits you realize. That means if you rebalance your portfolio in this way too frequently, you could end up owing the government significant amounts of tax.
A more tax-friendly approach may be to reallocate the amount being directed into slower growing investments or to make additional contributions into that category.
In addition to the possible tax impact of rebalancing, you should consider potential transaction fees unless they are included in a fee-based adviser account. Your financial adviser can help you identify rebalancing strategies that minimize trading costs.
