Real‑world examples of rebalancing techniques for retirement accounts

When people ask for examples of rebalancing techniques for retirement accounts, they rarely want theory. They want to know, “What do people actually do with their 401(k) when stocks run hot or bonds slump?” So let’s start with concrete, real‑world scenarios.

Picture a 45‑year‑old with a $300,000 401(k) invested 60% in stock index funds and 40% in bond funds. After a strong year for stocks, the portfolio drifts to 70% stocks and 30% bonds. That’s more risk than they signed up for. A basic rebalancing move would be to sell some stock fund shares and buy bond fund shares until they’re back near 60/40. That simple, mechanical action is the backbone behind most examples of rebalancing techniques for retirement accounts.

From there, investors layer in rules: using thresholds, using new contributions, using target‑date funds, and timing rebalancing around major life events like retirement. The techniques differ, but the goal is the same: keep your risk profile aligned with your plan instead of letting the market decide it for you.

Calendar‑based rebalancing: a simple example of a “set a date and do it” approach

One classic example of rebalancing techniques for retirement accounts is calendar‑based rebalancing. You pick a regular schedule – often once or twice a year – and on that date you adjust your investments back to your target mix.

Take that same 45‑year‑old with a 60/40 target in a 401(k):

• Every January, they log into their plan and check the current allocation.
• If stocks have grown to, say, 65% and bonds are 35%, they shift money from stock funds into bond funds until they’re back near 60/40.
• If bonds have outperformed and the portfolio sits at 55/45, they do the opposite.

This approach is popular because it’s boring in the best way. It reduces emotional trading, gives you a predictable routine, and works well in tax‑advantaged accounts like 401(k)s and IRAs where trading doesn’t trigger capital gains.

Why people like it in 2024–2025:

• Volatility has remained elevated since 2020, and regular check‑ins help investors avoid “set and forget” drift.
• Many 401(k) recordkeepers now offer calendar‑based rebalancing as a one‑click feature.

The trade‑off: you might rebalance even when your allocations haven’t moved much, which can lead to unnecessary trading. That’s why many investors combine this with threshold rules.

Threshold‑based rebalancing: letting the numbers, not the calendar, trigger action

Another of the best examples of rebalancing techniques for retirement accounts is threshold‑based rebalancing, sometimes called “tolerance band” rebalancing.

Instead of rebalancing on a fixed date, you rebalance only when an asset class drifts beyond a set band – for example, more than 5 percentage points away from target.

Using the same 60/40 target:

• You might set a rule: only rebalance if stocks go below 55% or above 65% of the portfolio.
• If the stock portion rises to 67%, you sell enough stock funds and buy bond funds to get back close to 60/40.
• If stocks fall to 52%, you buy stock funds (often using bond fund proceeds) to bring stocks back up toward 60%.

This approach is more responsive to market moves and avoids trading when markets are calm. In a choppy market like 2022–2023, threshold‑based strategies often triggered several rebalancing events as stocks and bonds moved in unusual ways (including the rare situation where both fell together in 2022).

Academic work from Vanguard and others has suggested that a combination of annual and threshold‑based rebalancing can be effective in practice, reducing extreme drift without excessive trading. Vanguard’s paper on rebalancing strategies provides data‑driven context for this approach: https://personal.vanguard.com/pdf/icrpr.pdf

Using new contributions: a tax‑efficient example of “stealth” rebalancing

One of the most underrated examples of rebalancing techniques for retirement accounts involves using new contributions and reinvested dividends instead of selling anything.

Imagine you contribute $1,000 per month to your 401(k). Your target is still 60% stocks, 40% bonds, but after a strong year, your account has drifted to 68% stocks, 32% bonds.

Rather than selling stocks, you can:

• Direct 100% of new contributions into bond funds until your allocation drifts back toward 60/40.
• Turn off automatic reinvestment into the overweight asset class (if your plan allows) and redirect distributions into the underweight asset class.

Over several months, the flow of new money pushes the portfolio back toward target with minimal trading. In tax‑advantaged accounts, this is more about keeping costs and complexity low than avoiding taxes, but the logic is the same: use cash flows first.

This “cash‑flow rebalancing” is especially useful for younger investors whose contributions are large relative to their account balance. For someone in their 30s adding 10–15% of salary each year, this technique alone can keep allocations reasonably close to target.

Target‑date funds: built‑in examples of rebalancing techniques for retirement accounts

If you want a hands‑off option, target‑date funds offer a ready‑made example of rebalancing techniques for retirement accounts that happen automatically.

Here’s how they typically work:

• You pick a fund based on your expected retirement year (for example, 2055).
• The fund holds a diversified mix of stocks, bonds, and sometimes other assets.
• The fund company gradually shifts the mix from aggressive (more stocks) to conservative (more bonds) as you approach retirement.
• Within that mix, the fund periodically rebalances back to its internal targets.

In other words, you outsource both rebalancing and changing your risk level over time (the “glide path”).

In 2024–2025, target‑date funds remain the default investment option in many US 401(k) plans, and large providers like Vanguard, Fidelity, and T. Rowe Price publish their glide paths and methodologies. The Department of Labor provides guidance on how plan sponsors should evaluate these funds: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/target-date-retirement-funds.pdf

For investors who don’t want to manage multiple funds or think about thresholds, a low‑cost target‑date fund can be a very practical example of rebalancing techniques for retirement accounts in action.

Age‑based glide path: DIY examples of rebalancing as you get closer to retirement

Not everyone likes target‑date funds. Some prefer to build their own mix of index funds and adjust it over time. That leads to another common example of rebalancing techniques for retirement accounts: the age‑based glide path.

Instead of keeping a fixed 60/40 forever, you intentionally shift to a more conservative mix as you age. For instance:

• At 35: 80% stocks, 20% bonds
• At 45: 70% stocks, 30% bonds
• At 55: 60% stocks, 40% bonds
• At 65: 50% stocks, 50% bonds (or lower stock exposure, depending on your plan)

Rebalancing here has two layers:

• Within each stage, you rebalance back to the current target (for example, keep it close to 70/30 during your 40s).
• Between stages, you intentionally reset the target to a safer mix as a birthday or retirement date milestone hits.

This approach mirrors the logic of target‑date funds but keeps you in control of the exact allocations and fund choices. Many investors combine this with threshold‑based rules, updating both the target mix and the tolerance bands every 5–10 years.

For deeper guidance on asset allocation by age and risk tolerance, the FINRA investor education site is a solid resource: https://www.finra.org/investors

Asset‑class‑specific examples: rebalancing between US stocks, international stocks, and bonds

Most retirement accounts today are built around a small set of building blocks: US stocks, international stocks, and bonds. So practical examples of rebalancing techniques for retirement accounts often focus on how to manage those three buckets.

Consider a simple IRA portfolio:

• 50% US stock index fund
• 20% international stock index fund
• 30% total bond market fund

Over a few years, US stocks outperform, international stocks lag, and bonds tread water. You might find yourself at:

• 60% US stocks
• 15% international stocks
• 25% bonds

A thoughtful rebalancing move could look like this:

• Trim US stock funds down toward 50%.
• Add to international stocks first (since they’re the most underweight), then to bonds if needed.

This is where rebalancing does double duty: you’re not just controlling risk; you’re systematically selling relative winners and buying relative losers, enforcing a “buy low, sell high” discipline that most people talk about but rarely execute.

In 2022–2023, many US‑based investors found their international allocations had shrunk simply because US stocks had dominated for more than a decade. Rebalancing in 2024–2025 often means deliberately adding to international exposure, which can feel uncomfortable but aligns with the original plan.

Examples of rebalancing techniques for retirement accounts during high inflation and rising rates

Recent years have given investors a crash course in how macro conditions change the rebalancing conversation. From 2021 onward, inflation spiked and interest rates rose sharply, hitting both stocks and bonds.

Some real examples of rebalancing techniques for retirement accounts in that environment:

• Investors who had let their stock allocations drift very high before 2022 suddenly faced bigger losses than they expected. Those who had rebalanced regularly into bonds, even when yields were low, often saw smaller drawdowns.
• As bond yields climbed in 2023–2024, some near‑retirees used rebalancing to increase bond exposure, locking in higher income potential and reducing sequence‑of‑returns risk.
• Younger investors used falling stock prices as a chance to rebalance into equities, often via new contributions, taking advantage of lower prices while keeping their long‑term stock targets intact.

The lesson from these examples is not that one specific mix is always right, but that having a rebalancing rule – and sticking to it through weird macro environments – matters far more than trying to time markets.

For context on inflation and retirement planning, the Social Security Administration and the Federal Reserve offer data and explanations that can inform your assumptions:

• Social Security Administration: https://www.ssa.gov/planners
• Federal Reserve education resources: https://www.federalreserve.gov/education.htm

Behavioral guardrails: how rebalancing techniques fight emotional investing

There’s another reason examples of rebalancing techniques for retirement accounts matter: they give you a script to follow when your emotions are screaming at you to do the opposite.

Real‑world behavior patterns:

• During bull markets, investors often want to chase winners and let stock allocations run far above their comfort zone.
• During bear markets, the instinct is to sell what’s falling and hide in cash.

A pre‑defined rebalancing rule acts like a speed limit sign. When stocks soar and your 60/40 becomes 75/25, the rule says, “Time to trim stocks,” even if your gut says, “This rally will never end.” When stocks crash and your allocation falls to 45/55, the rule says, “Add to stocks,” even if your gut is begging you to bail out.

The best examples here are investors who continued to rebalance into stocks in March 2020 or late 2022, following their tolerance bands or calendar rules. Many of them later saw strong recoveries in their retirement accounts precisely because they didn’t let fear or euphoria rewrite their plan.

FINRA and the SEC both emphasize the importance of written investment policies and disciplined behavior in retirement planning. The SEC’s investor site offers plain‑English guidance on these topics: https://www.investor.gov

Putting it together: choosing the right mix of techniques for your retirement accounts

At this point, we’ve walked through several examples of rebalancing techniques for retirement accounts:

• Calendar‑based rebalancing (for example, annually or semiannually)
• Threshold‑based rebalancing with tolerance bands
• Using new contributions and dividends to rebalance quietly over time
• Target‑date funds with built‑in rebalancing and glide paths
• DIY age‑based glide paths where you adjust risk as you age
• Asset‑class‑specific rebalancing between US stocks, international stocks, and bonds
• Adjusting allocations in response to inflation and interest‑rate environments

The “best” approach depends on your personality, your plan options, and how involved you want to be. Some investors pick a single target‑date fund and let it handle everything. Others run a three‑fund portfolio with explicit rules like: “Check every June and December; rebalance if any asset class is more than 5 percentage points off target.”

Whichever approach you choose, the key is to write it down, automate what you can inside your retirement accounts, and review the rules every few years as your life and goals change.

FAQ: examples of rebalancing techniques for retirement accounts

Q: What are some simple examples of rebalancing techniques for retirement accounts that a beginner can use?
A: Two of the simplest are: using a single target‑date fund that automatically rebalances, or setting an annual reminder to log into your 401(k) or IRA and adjust back to your desired stock/bond mix. Both give you a clear routine without complex math.

Q: Can you give an example of rebalancing during a market crash in a retirement account?
A: Suppose your IRA target is 70% stocks, 30% bonds. After a sharp drop, you’re at 60% stocks, 40% bonds. Following a threshold rule, you might move some money from bonds back into stock index funds to restore the 70/30 mix. That feels uncomfortable in the moment, but it aligns with buying when prices are lower.

Q: Are there examples of rebalancing techniques for retirement accounts that avoid selling investments?
A: Yes. Directing new contributions and reinvested dividends into underweight asset classes can gradually pull your portfolio back toward target. Over time, this “cash‑flow rebalancing” can be surprisingly effective, especially for investors still in their high‑contribution years.

Q: How often should I rebalance my 401(k)?
A: Many investors use annual or semiannual checks, combined with tolerance bands (for example, rebalance only if an asset class is more than 5 percentage points off target). That approach balances discipline with practicality. The right frequency also depends on your plan’s trading rules and any transaction limits.

Q: Are there real examples of investors rebalancing too often in retirement accounts?
A: Yes. Some investors check their accounts weekly and trade on every market move. That can lead to overtrading, higher costs, and emotional decisions. Research from firms like Vanguard suggests that moderate schedules (annual or semiannual) with bands are usually enough to control drift without micromanaging.

Q: Do I need different rebalancing techniques for Roth IRAs versus traditional IRAs?
A: The mechanics of rebalancing are similar in both. The main difference is tax treatment of withdrawals, not trades within the account. Some people prefer to hold higher‑growth assets like stocks in Roth accounts and more conservative assets in traditional IRAs, then rebalance within each account to keep the overall household allocation on target.

The bottom line: the best examples of rebalancing techniques for retirement accounts are the ones you’ll actually follow through market cycles. Pick a rule set that fits your temperament, automate what you can, and let the process quietly protect your retirement plan from unnecessary risk.