Portfolio Rebalancing Calculator
Work out exactly what to buy and sell to return a portfolio to its target allocation, with a drift threshold, a cash-only rebalancing option and the tax cost of selling.
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Drift is the price of not deciding
A portfolio set to sixty percent equities and forty percent bonds does not stay there. After a strong equity year it might be seventy five to twenty five, which is a materially riskier portfolio than the one that was chosen, arrived at by doing nothing. Rebalancing sells what has risen and buys what has fallen, restoring the intended risk and mechanically enforcing the discipline everyone claims to want and few execute.
Threshold beats calendar
Rebalancing on a fixed date trades whether or not anything has drifted, incurring cost for no benefit in a quiet year. Threshold rebalancing acts only when an allocation moves more than a set distance from target, commonly five absolute percentage points or twenty five percent of the position's own weight. Research on rebalancing consistently finds threshold approaches capture most of the benefit at a fraction of the turnover, and the choice of threshold matters far less than having one at all.
Rebalance with new money where possible
Selling triggers transaction costs and, in a taxable account, capital gains. Directing new contributions to the underweight assets moves the portfolio toward target without selling anything, which is why the cash-only mode here calculates the best allocation of an incoming contribution before considering any sale. Where selling is unavoidable, doing it in tax sheltered accounts first is nearly always cheaper than doing it in taxable ones.
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Frequently Asked Questions
How often should I rebalance?
Check quarterly or semi-annually and act only when a holding has drifted past your threshold. Research finds this captures most of the benefit at far lower turnover than rebalancing on a fixed calendar regardless of drift.
What threshold should I use?
Five absolute percentage points is a common default, or twenty five percent of the position’s own target weight, which scales better for small allocations. A 5 percent holding drifting to 6 is a 20 percent relative move that an absolute threshold would ignore.
Should I rebalance with new contributions instead?
Where you can, yes. Directing new money to underweight assets avoids selling entirely, which avoids both transaction costs and capital gains. The cash-only mode here calculates that allocation first.
Does rebalancing improve returns?
Not reliably. Its purpose is risk control: keeping the portfolio at the risk level you chose. Any return benefit comes from mechanically selling high and buying low, and it is small and inconsistent compared to the risk management benefit.
How should tax affect the decision?
Considerably in a taxable account. Sell in tax sheltered accounts first, use new contributions second, and realise gains only when the drift is large enough to justify the tax. The calculator estimates the tax cost so the trade off is visible.
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How to Use
Enter each holding with its current value and target weight to get the trades needed.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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