Portfolio Rebalancing Calculator
Enter your current holdings and target allocation to see exactly what trades you need to make. This calculator shows you when rebalancing is needed and generates specific buy/sell instructions to restore your target allocation.
Rebalancing Settings
Your Holdings
Total: $100,000⚠️ Rebalancing Recommended
Some holdings have drifted beyond your 5% threshold.
Rebalancing Instructions
Current vs Target Allocation
Understanding Portfolio Rebalancing
Why Rebalance?
Over time, some investments grow faster than others, causing your portfolio to drift from your target allocation. Rebalancing restores your intended risk level and can improve long-term returns.
When to Rebalance
Common approaches: (1) Calendar-based (quarterly or annually), (2) Threshold-based (when allocation drifts 5%+), or (3) Hybrid approach. Threshold-based is often most tax-efficient.
Tax Considerations
In taxable accounts, selling winners triggers capital gains taxes. Consider rebalancing with new contributions, or rebalance within tax-advantaged accounts (401k, IRA) first.
Frequently Asked Questions
What is portfolio rebalancing?
Portfolio rebalancing is the process of realigning the weightings of your portfolio assets to maintain your original target allocation. Over time, some investments grow faster than others, causing your portfolio to drift from your intended risk level. Rebalancing involves selling overweight assets and buying underweight ones.
How often should I rebalance my portfolio?
There are three common approaches:
- Calendar-based: Rebalance quarterly or annually on set dates
- Threshold-based: Rebalance when any asset drifts 5%+ from target
- Hybrid: Check quarterly, but only rebalance if thresholds are exceeded
Research suggests threshold-based rebalancing at 5% bands is often most effective and tax-efficient.
Does rebalancing improve returns?
Rebalancing primarily manages risk rather than maximizing returns. However, it can improve risk-adjusted returns by systematically selling high (overweight assets) and buying low (underweight assets). Studies show rebalanced portfolios often have similar or slightly better returns with lower volatility.
How do I rebalance without paying taxes?
To minimize taxes when rebalancing:
- Rebalance within tax-advantaged accounts (401k, IRA) first
- Use new contributions to buy underweight assets
- Reinvest dividends into underweight positions
- Use tax-loss harvesting to offset gains
- Consider rebalancing less frequently in taxable accounts