Rebalancing and diversifying your investment portfolio are essential strategies for maintaining a healthy and resilient investment portfolio.

Rebalancing involves periodically reviewing your portfolio's asset allocation and making adjustments to bring it back to your target mix. This is important because as different asset classes perform differently over time, your portfolio's allocation can drift from your original plan. For example, if stocks have performed well, they may come to represent a larger portion of your portfolio than intended, exposing you to higher risk. Rebalancing would involve selling some stocks and buying other assets to restore the desired balance.

Diversification, on the other hand, involves spreading your investments across different asset classes, industries, and geographic regions to reduce the overall risk. For instance, a well-diversified portfolio might include stocks, bonds, real estate, and commodities, as well as investments in both domestic and international markets.

As for the timing of these actions, rebalancing is typically recommended on a regular schedule, such as annually or semi-annually. However, it can also be triggered by significant market movements that cause your portfolio to deviate substantially from your target allocation. Diversification, on the other hand, is an ongoing process and should be considered whenever you make new investments to ensure they contribute to a well-rounded portfolio.

References:

• Investopedia - Rebalancing
• U.S. Securities and Exchange Commission - Asset Allocation