Buy and Hold vs Rebalancing - What is better?

Q: What is the buy and hold investing strategy?

Buy and hold is a long-term investment strategy where you build a portfolio and leave it alone. Whether it’s equities, mutual funds or fixed deposits, the idea is to stay invested and allow the portfolio to grow through compounding.

Q: How does rebalancing protect my portfolio in market downturns?

Rebalancing protects your portfolio by readjusting it to your target asset allocation and risk tolerance. During market volatility, certain assets may lose or gain value faster than others, causing your portfolio to drift from its intended mix. Rebalancing counters this drift by selling overperforming assets and buying underperforming ones, thereby: • Reducing overexposure to volatile asset classes. • Preserving capital by cushioning against sharp losses. • Maintaining discipline and preventing panic-driven decisions. • Ensuring liquidity when withdrawals are needed during volatile periods. During the 2008 and 2020 crashes, rebalanced portfolios experienced smaller drawdowns compared to buy-and-hold portfolios, demonstrating greater resilience.

Q: How often should I rebalance my portfolio?

Rebalancing can be done in two main ways: • Periodically: At fixed intervals such as annually or quarterly. • Threshold-based: When asset allocations deviate beyond a set limit, such as ±5% from the target mix. br> Note that even major indices like the NIFTY 50 rebalance semi-annually. Regular rebalancing is a common and effective practice to keep portfolios aligned with investment objectives.

When it comes to building long-term wealth, investors often fall into two camps: those who prefer to buy and hold, and those who favour periodic rebalancing. The first strategy relies on patience and simplicity, the other on discipline and adaptability.

JioBlackRock advantage

Published on 20 May 2026

4 min read

This article looks at how the two strategies compare during periods of market volatility, to help you decide which approach protects your portfolio and keeps it aligned with your financial goals.

What does buy and hold really mean?

Buy and hold is a long-term investment strategy in which you build a portfolio and leave it alone regardless of market fluctuations. Whether it’s equity, mutual funds or fixed deposits, the idea is to stay invested and allow the portfolio to grow through compounding.

Advantages of buy and hold:

Simple to implement and follow.
Shields you from short-term market noise.
Minimises transaction costs.

However, buy and hold comes with hidden risks. Over time, outperforming or underperforming assets can skew your portfolio away from its original allocation. For example, a small-cap stock surge may make you overweight in equities. Or inflation might quietly erode the value of your investment in fixed deposits. These scenarios can expose you to more risk than you signed up for. If markets fall, the impact of this portfolio drift can be severe.

What is rebalancing?

Rebalancing is the process of periodically realigning your portfolio to maintain the asset mix that best reflects your financial objectives. If your target allocation is 60% equity and 40% fixed income, and equities grow to 70% of the total, rebalancing involves selling some stocks and reinvesting the proceeds in fixed income to restore the 60/40 ratio.

Advantages of rebalancing:

Maintains the portfolio in line with your risk tolerance.
Prevents overexposure to any one asset class.
Reduces portfolio volatility over time.

Ensures your portfolio remains on track to help meet your financial objectives.

Rebalancing can be done on a periodic basis say, quarterly or annually or in response to a trigger, such as when asset weights drift beyond a set threshold. Even indices like the NIFTY 50 rebalance every six months, replacing under performers with better performing stocks.

Case study: 2008 and 2020 market volatility

Let’s compare two portfolios:

Portfolio A: Buy-and-hold portfolio i.e. no rebalance (blue bars)
Portfolio B: Portfolio rebalanced quarterly (orange bars)

During the 2008 global financial crisis:

Portfolio A dropped 50% from its then high.
By contrast, Portfolio B retained more value, dropping 42% from its then high.

During the 2020 Covid crash:

Portfolio A fell by 30% from its immediate high.
Portfolio B was more resilient and fell only by 23% from its immediate high

Source: Bloomberg. Data as of 30th June, 2025
For illustration purpose only

The above chart shows that most of the time, portfolios that are not periodically rebalanced lose more value than those that are during volatile periods. Rebalancing, therefore, provides a cushion against capital loss. It offers greater resilience and adaptability than buy and hold, especially during market movements, by protecting against drift and sharp downturns. If investors need to withdraw money during a volatile period, they would suffer more losses by withdrawing from un-rebalanced portfolios than rebalanced portfolios.

Key considerations when deciding your portfolio strategy

Start by assessing your personal comfort level with market volatility by taking a risk profile assessment. If a 30% drop for instance would trigger panic-selling, buy and hold may not be suitable. In such cases, rebalancing provides a rules-based framework that helps maintain discipline and keeps you invested during turbulent times.

For those in or about to enter retirement, prioritising rebalancing is also important for risk control. Allowing a portfolio to drift to, for example, 80-90% equity exposure just before or during retirement can have negative effects. For this group, a disciplined rebalancing strategy is recommended to preserve capital.

Bottom line: Investing isn’t just about growth, but about risk-adjusted growth

Buy and hold may be a simple strategy, but it carries hidden risks. Rebalancing keeps your portfolio aligned to your risk tolerance, life stage and goals. In a dynamic market like India’s, impacted by economic cycles and investor sentiment, rebalancing can give you a strategic edge. Rebalancing can protect you against asset drift and sharp downturns. It will keep your portfolio on track to meet your investment objectives.

Questions you might have

What is the buy and hold investing strategy?

How does rebalancing protect my portfolio in market downturns?

How often should I rebalance my portfolio?

This article is for educational purpose only.

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