This paper uses household-level longitudinal data from the Household, Income, and Labour Dynamics in Australia (HILDA) survey to gain insights into the asset portfolio rebalancing responses of households experiencing a severe financial shock. The major life events we consider are serious illness or injury, death of a spouse, fired or made redundant, and separation from a spouse. The asset classes are bank accounts, cash investments, equities, superannuation, cash-in values of life insurance policies, trust funds, owner-occupied housing, investor housing, business assets, vehicles, and collectibles. We use static Tobit models to assess the over impact of the life events on asset class shares in household portfolios and dynamic Tobit models to investigate the magnitude and duration of the financial shocks over time. We find that serious illness and injury, loss of employment and separation cause households to rebalance portfolios in ways that have detrimental impacts on long-term wealth accumulation. In particular, when households experience illness/injury or employment loss, they tend to reduce their equity portfolio share in both the short- and long-term with the implication of reduced portfolio returns, while those that experience separation reduce the portfolio share of owner-occupied housing also immediately, but then increase it over the longer term, thereby causing concern about transaction costs. The insights gained from these studies are particularly important for financial planners, as it may be possible to hedge wealth adverse impacts through better financial education, insurance products, or general financial preparedness.