What is the process called that involves buying and selling securities to maintain original asset allocation?

The process of buying and selling securities to maintain the original asset allocation within an investment portfolio is known as systematic rebalancing. This practice is crucial as it ensures that the portfolio remains aligned with the investor's target asset mix, which may become unbalanced due to market fluctuations. Over time, certain assets may outperform or underperform, potentially leading to a drift in the intended allocation percentages.

By systematically rebalancing—whether on a set schedule (like quarterly or annually) or when asset allocations deviate beyond predefined thresholds—investors can realign their portfolios back to their strategic allocations. This not only helps manage risk by avoiding excessive exposure to any single asset class but also enforces a disciplined investment strategy.

In contrast, dynamic allocation involves adjusting the asset allocation based on market conditions or forecasts, which is a different strategy from the consistent process involved in systematic rebalancing. Market adjustment, while related, doesn't specifically refer to the rebalancing process, and portfolio diversification focuses on spreading investments across various asset classes to reduce overall risk rather than specifically maintaining original allocations.