Investing term

What is 5/25 rule?

Rebalance any sleeve that has drifted more than 5 percentage points absolute, or 25% relative, from its target weight.

The 5/25 rule is a tidy trigger for when to rebalance. You act when any holding drifts 5 percentage points in absolute terms from its target, OR 25% in relative terms — whichever happens first. The two thresholds cover both big and small positions: the absolute one catches your large sleeves, the relative one catches your small ones before they drift unnoticed.

For example

A 20% target trips at 25% on the absolute rule (5 points), but a 4% target trips at just 5% on the relative rule (4% × 1.25) — long before it ever moves 5 whole points.

5/25 rule is taught hands-on in Stage 18 — Rebalancing & Maintenance.

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Related terms

Calendar ruleRebalance on a fixed schedule (e.g. annually) regardless of how far the portfolio has drifted.New-money rebalancingBringing the portfolio back to target by directing new contributions into underweight sleeves, rather than selling overweight ones.Rebalancing premiumThe small return boost a disciplined rebalancer earns over a buy-and-drift portfolio, by systematically selling high and buying low.Target allocationThe intended weights of each asset class, sector, or position in your portfolio — the shape you set on a calm day.
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