The midpoint of the year is approaching, and the market is on track for its second year in a row of above-average returns. This has many investors asking about rebalancing. Below are some commonly asked questions on this topic.

What is rebalancing? Suppose that to balance risk and return in your portfolio, you’ve settled on an asset allocation of 50% in stocks and 50% in bonds. But now suppose that the stock market rises 10%. This would lift the stocks in your portfolio such that stocks would now account for 52% of the total instead of 50%. This is where rebalancing would come in. If you wanted to return your account to its initial 50%/50% split, you’d sell stocks and buy bonds with the proceeds. That, in a nutshell, is how rebalancing works.

Why rebalance? When it comes to managing a portfolio, risk management should always come first, in my view. That’s the main reason you might want to rebalance. When you cut back on stocks, as in the example above, you reduce risk.

While risk management should be investors’ first priority, it isn’t the only one. Rebalancing also carries the potential to boost growth. Suppose that instead of rising, the stock market fell by 10%. The result in this case is that stocks would drop to about 47% of your portfolio. To get back to the original 50% target, you’d sell bonds and buy stocks. And because you’d be buying stocks when they’re depressed, they’ll likely carry greater growth potential.

When to rebalance? There’s debate on this topic. Some prefer to rebalance on a set schedule, such as quarterly or annually, while others rebalance only when the market has experienced a significant move. According to a survey of the research by author Mike Piper, the data on this topic is contradictory, which means that there isn’t one approach that’s guaranteed to be optimal. Personally, I prefer only rebalancing when it’s warranted by market movements.

If you’re in retirement and taking regular withdrawals from your portfolio, though, you could approach it differently. A retiree whose portfolio had become too heavily weighted in stocks could rebalance incrementally by taking each of his monthly withdrawals only from the stock side of his portfolio.

When it comes to the question of when to rebalance, the most important thing, in my view, is to avoid falling into the trap of recency bias—the mind’s tendency to extrapolate from recent trends. When investors see the market rising, it can be tempting to want to “let it ride” and avoid selling stocks. But it’s precisely at times like this that the discipline of rebalancing can be most helpful.

Where to rebalance? Suppose you hold stocks and bonds in more than one account. Where should you place rebalancing trades? While every investor is different, there are some guidelines. For starters, there’s one account I would never rebalance. If you have a Roth IRA, I’d keep it invested entirely in stocks at all times, to maximize the benefit carried by these tax-free accounts.

On the other hand, if you have a tax-deferred retirement account, such as a 401(k) or traditional IRA, that would be the ideal spot to rebalance, because trades within these accounts don’t incur taxable gains.

The key is to view your portfolio holistically. If your target is to hold 50% in stocks, don’t feel the need to set every account to that same 50%.

How to rebalance? Once you’ve decided when and where to rebalance, the next question is how to do it. There are a number of considerations.

First, it’s important to look at your portfolio through more than one lens. It’s good to have targets—such as 50% stocks—and to be diligent in rebalancing to those targets. But it’s also important to look at your portfolio in dollar terms. Most important is to keep an eye on the dollars you hold in bonds, because they’re the safety net of a portfolio.

Because bonds’ role is to meet your withdrawal needs when the stock market is down, you’ll want to regularly monitor your bond holdings relative to your needs in dollar terms. The reading on this gauge can help determine whether, and to what degree, there’s urgency to rebalance. Someone early in her career, who’s only adding to her portfolio, might not be as quick to take risk down when stocks rise. But a retiree who’s taking regular withdrawals might be much less tolerant of risk and thus quicker to reduce it.

A key question many struggle with is whether to rebalance all at once or just incrementally. There’s no magic bullet to answer this question because, ultimately, we can’t know which way the market is headed. And thus, we can never know in advance when the absolute optimal time would be to rebalance. But taxes can provide a useful guide in deciding how to make this timing decision.

If you’re rebalancing in a taxable account, and incurring capital gains as a result, you might use the capital gains tax brackets to help decide how much to sell each year. A 15% marginal bracket, for example, applies to capital gains when taxable income is below roughly $584,000 for a married couple or $519,000 for an individual. While those numbers might sound high, keep in mind that they include all categories of income, including wages. So if you’re rebalancing, you might view the top of the 15% bracket as a cap and defer any further gains into the following year. This way, you’d avoid ever going into the top capital gains bracket, which is currently 20%.

Those with incomes below $100,000 can benefit from another tax threshold. For married couples with taxable income up to $94,000, or individuals with income up to $47,000, capital gains aren’t taxed at all. Folks in this 0% bracket, then, might use the top of that bracket as their rebalancing cap each year.

And finally, married couples whose income is approaching $250,000, or individuals with incomes nearing $200,000, should keep in mind the net investment income tax, which applies a 3.8% surtax on investment income above those thresholds.

When estimating your income for the year, don’t forget about dividends and interest, as well as capital gains distributions from mutual funds held in taxable accounts. Because these can be difficult to estimate, you might use the figures from your prior year’s tax return as a reasonable approximation.

What to rebalance? So far, we’ve discussed the question of rebalancing only at a high level, considering the split between stocks and bonds. But what if your portfolio contains more than one stock holding and more than one bond holding, as is the case for most people? On the one hand, this makes rebalancing more complicated, but it also offers an opportunity, because it provides more levers with which to control capital gains. In trimming back your stock exposure, you could sell a combination of some more highly and some less highly appreciated assets, or perhaps even assets with losses.

Another useful lens is to examine the breakdown of holdings within your stock holdings and within your bond holdings. When assessing a stock portfolio, you might look for concentrations that carry risk, such as a big holding in one stock, one industry or one geography. Within bonds, you might examine the breakdown along four dimensions: maturity, type, quality and geography. Don’t have the desired mix? That’ll make it easy to know what to sell.