Rebalancing your portfolio to get back to the allocation you need based on your age and risk tolerance is required but should not be done too often. You usually do not need to rebalance your portfolio until an asset class in your portfolio is at least 5% off from where it should be. There are a couple of reasons why rebalancing too often can be costly.
First, selling winning stocks to move that money to bonds or cash is going to trigger capital gains tax for the sold securities. Second, too many sales and purchases can have a worse effect on your portfolio than having a portfolio that is out of balance because of the commissions typically charged for each transaction. Rebalancing too often may rack up more taxes and fees than is necessary.
So how do you avoid the taxes and fees when it does come time to rebalance? The tax part can be taken care of by focusing your rebalancing efforts within your tax-advantaged accounts such as your 401(k) or IRAs. Selling stocks with gains in these accounts will not require any additional tax. If the accounts are traditional 401(k) or IRA accounts, the tax is deferred until the distributions are taken. If they are Roth accounts, the earnings are tax-free. Look at your portfolio as a whole, including all your tax-advantaged accounts together with any taxable accounts when evaluating your asset allocation and determining whether a rebalance is in order. Then do the rebalancing in the tax-advantages accounts. If you find that you need to rebalance within your taxable accounts, do it by adding new money to the asset classes that have dropped below their ideal percentage rather than selling securities that will require the payment of capital gains tax. If you do not have new money to put into these lagging asset classes, consider having your stock's dividends and capital-gains distributions paid into a money market account. You can then use that cash for rebalancing by adding it to the lagging asset classes.