For those of you who are new to investing, rebalancing is adjusting your portfolio so that the percentage you hold in each type of asset (typically stock and bonds) is aligned with the desired percentage you started off with.
Example: You start off with 60% of your money in the S&P 500 indice and 40% of your money in long term US treasury bonds (stocks/bonds 60/40 is a highly recommended allocation). After a year, the S&P 500 indice performs extremely well, whereas the US treasury bonds perform at an average rate. Thus, your portfolio is now 65% the S&P 500 indice and 35% long term treasury bonds. Rebalancing is then simply the act of buying/selling your assets to realign your portfolio with the initial allocation - 60/40.
Bear in mind that this doesn't have to be stocks/bonds ratios (although that's typically where it's used). Moreover, this technique can be used and applied to any set of assets (e.g. two different stocks).
Simple enough, but is it truly beneficial? And if so, why? Well those answers are no doubt beyond my ability to adequately explain; however, the following is a pretty cool article that goes into the effect and efficiency of rebalancing.
Rebalancing Can Be Hazardous To Your Portfolio
For those of you "experts," here's a far more elaborate and confusing article that I only half-way am able to digest. Some interesting bits to pull from it though and certainly worth skimming.
The Rebalancing Bonus
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