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 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.
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates 
