The purpose of the quarterly rebalancing is so that your portfolio returns to its original allocation for each asset class to bring back the risk level within your risk tolerance. If one asset class (e.g. US equity) has gained so much and no rebalancing is done, your portfolio's risk level will skew higher as its exposure in that risky asset increases. As a result of the rebalancing, any unrealized gains or losses for any asset class that has a higher allocation than originally intended shall be realized through the selling activity of that asset class. Cash from the sale of that asset is invested in another asset class that has a lower allocation than originally intended.