What's the difference between calendar-based and threshold-based rebalancing, and which is better?

Calendar rebalancing means checking on a fixed schedule, say once a year, and resetting to your targets. Threshold rebalancing means acting only when an allocation drifts beyond a set band, such as 5 percentage points off target, regardless of the date. Both work; the difference is what triggers the trade.

Threshold methods respond to actual market moves, so they may rebalance more often in wild markets and less in calm ones, potentially capturing more benefit. Calendar methods are simpler and easier to stick with. A popular hybrid is to check on a schedule but only trade if you're beyond your bands, giving you the discipline of a routine without needless small trades. For most people, checking once or twice a year with a 5% band is plenty. The best method is the one you'll actually follow consistently.