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Should I rebalance quarterly or annually?

Long Term Investing

4 July 2025

5 min read

Rebalancing can keep your portfolio on track, but how often should you do it: quarterly, annually, or at some other timeframe? Here's what to consider.

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Written by

Cathy Sun
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There’s no universal rule for how often you should rebalance, and that’s what makes it tricky. Too often might invite overthinking; too rarely could shift your portfolio further than you’d like. Understanding the trade-offs can help you land on a rhythm that feels both practical and sustainable. Which approach has the edge, and what should you watch out for? Let’s take a look.

If you’ve set up your portfolio with a certain mix of investments — like 60% shares and 40% bonds — you've probably done it for a reason. Maybe you want to grow your money while still playing it a bit safe. But markets move, and over time, your mix might get out of whack.

When shares rise, for example, they can end up taking over more of your portfolio than you planned. That means your investments could become riskier than you’d like, without you even realising.

That’s where rebalancing comes in. It’s the process of shifting your investments back to your intended mix, so your strategy stays on course. A common question is: how often should you actually do this?

This article breaks down the two most popular rebalancing schedules: quarterly and annually. Its goal is to help you decide which one suits your risk profile, investment strategy, and preferred level of involvement.

What is rebalancing?

Rebalancing is essentially portfolio maintenance. It’s how you realign your investments after market movements throw things off balance.

Say you start with 60% in shares and 40% in bonds. If shares perform strongly, you might drift to a 70/30 allocation. That means you’re now exposed to more risk than you originally intended. Rebalancing would involve trimming your share holdings and buying more bonds to bring your mix back to 60/40.

Learn more in our ultimate guide to rebalancing .

Why does rebalancing matter?

  • It helps keep your portfolio aligned with your risk tolerance .
  • It prevents overexposure to any one asset class.
  • It can encourage a more systematic, disciplined approach to investing.

That said, manual rebalancing isn’t essential for everyone. If you’re contributing regularly to a diversified investment, you might stay reasonably close to your target allocation without doing much.

The main options for rebalancing

Most rebalancing strategies follow a calendar-based schedule, meaning you rebalance at fixed intervals regardless of market movements. As mentioned earlier, the two most common approaches are quarterly and annual rebalancing.

Common calendar-based intervals:

  • Quarterly : Every three months
  • Annually : Once a year
  • Semi-annually : Every six months (less common)

Some investors also rely on threshold-based rebalancing. This involves rebalancing only when an asset allocation drifts beyond a set percentage (e.g. 5%) from its target. Threshold-based rebalancing can be more responsive, but also more complex to manage. It’s not the focus here, but it's worth being aware of.

Let’s explore the case for quarterly and annual rebalancing in more depth.

The case for quarterly rebalancing

Rebalancing every three months can appeal to investors who want to stay closely aligned with their target asset allocation. Here’s why:

1. Generally faster response to market volatility

When markets move quickly, quarterly rebalancing can allow you to react sooner and reduce risk drift before it becomes significant.

2. Keeps your risk exposure consistent

Frequent rebalancing can help ensure your portfolio doesn’t stray too far from your desired risk profile.

3. Locks in gains from outperforming assets

Quarterly rebalancing may give you more opportunities to trim positions that have surged in value, effectively selling high.

4. Appeals to engaged investors

If you like regular portfolio check-ins and want to stay hands-on, quarterly rebalancing can provide structure without encouraging overactivity.

The case for annual rebalancing

Annual rebalancing is usually simpler, and may suit investors who prefer a more hands-off approach.

1. Fewer transactions

Rebalancing once a year means less trading, which can lower transaction costs and minimise capital gains tax in non-super accounts.

2. Less temptation to interfere

Checking in less often can reduce emotional decisions and overreacting to short-term noise.

3. Similar long-term performance

Research shows there’s little difference in returns between quarterly and annual rebalancing over the long haul.

4. Easy to automate

Setting a single rebalancing date each year — say, in January or at the end of the financial year — may make it easier to build into your routine.

What the research tells us

Various studies , including research from Vanguard and Morningstar , suggest that:

  • The long-term return difference between quarterly and annual rebalancing is small, as detailed earlier.
  • Portfolios that are never rebalanced tend to experience much greater volatility. But any regular rebalancing schedule — quarterly, annual, or otherwise — can help reduce this volatility to a similar extent.
  • Your consistency and ability to follow through matter more than the specific interval.

In practice, the difference often comes down to behavioural discipline and costs, not performance.

The behavioural side of rebalancing

Investing isn’t just a numbers game. Your mindset and habits influence how well a rebalancing strategy works for you.

Overthinker?

If you’re prone to second-guessing or reacting emotionally to market swings , annual rebalancing might give you space to stay calm.

Prefer autopilot?

If you want to spend as little time as possible managing your portfolio , an annual cadence could be ideal. Alternatively, you could invest in an ETF that handles rebalancing for you.

Like regular structure?

Quarterly rebalancing can work well if you enjoy regular check-ins and are disciplined enough to avoid fiddling.

Tax and transaction considerations

Rebalancing by selling investments can trigger capital gains tax, especially in taxable accounts. If your broker charges for trades, those fees can also add up over time.

A common alternative is to rebalance using contributions. Instead of selling, you direct new deposits into underweight assets, which helps smooth your allocation over time without incurring tax.

How people rebalance in practice

Here are a few common approaches:

  • Manual rebalancing : Adjusting your portfolio quarterly or annually to match your target mix.
  • Rebalancing through new contributions : Adding funds to underweight assets rather than selling.
  • Using diversified ETFs : Products like VDHG or DHHF automatically rebalance for you, making the process easier.

Questions to help you choose your approach

  • How often do I want to interact with my portfolio? Consider how much time and attention you realistically want to give your investments.
  • Am I comfortable triggering capital gains? Selling assets to rebalance can create tax events, particularly outside super.
  • Do I have a strict target allocation, or just a general guide? A clear allocation might make rebalancing easier to plan and stick with.
  • Will I follow through with quarterly check-ins, or is once a year more realistic? Be honest about what schedule you'll actually maintain over time.
  • Would automation reduce decision fatigue for me? Automating your rebalancing approach can help remove emotion and make things simpler.

Consistency is key

Quarterly and annual rebalancing both support a disciplined long-term strategy. Neither is objectively better — what matters is picking a method you can stick with.

Choose a rebalancing approach that suits your goals, your comfort level, and how involved you want to be. Then commit to it. Because in investing, showing up consistently beats chasing perfection every time.

Happy investing, however often you choose to do it!

Author Profile Picture

Written by

Cathy Sun

Cathy Sun is the Head of Customer Success at Pearler. In her role, Cathy assists thousands of Australian investors to get the most out of their investing, superannuation, and home ownership journeys. Cathy is also experienced in AI-aware leadership, and ensuring that AI makes her team's lives easier. Cathy lives in Melbourne with her family, and is renowned within Pearler as the resident foodie. If you want to contact Cathy with any customer queries, you can email her at help@pearler.com

All figures and data in this article were accurate at the time it was published. That said, financial markets, economic conditions and government policies can change quickly, so it's a good idea to double-check the latest info before making any decisions.

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