Investing term

What is Threshold rule?

Rebalance whenever any sleeve drifts more than a set percentage from its target, regardless of how recently you last rebalanced.

A threshold rule rebalances whenever any part of your portfolio drifts more than a set percentage from its target, regardless of the calendar. It responds to actual movement — acting in volatile times and staying quiet in calm ones — which can be more efficient than rigid date-based rebalancing. The trade-off is you have to monitor for the trigger.

For example

With a 5-point threshold, a 60% stock target left alone triggers a rebalance only once stocks hit 65% — driven by drift, not the date.

Threshold rule is taught hands-on in Stage 18 — Rebalancing & Maintenance.

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Related terms

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