Rebalancing Calculator
Rebalancing sells what has grown and buys what has not, returning a portfolio to its intended weights. Drift is not a mistake — it happens automatically as prices move — but it means the portfolio's risk is no longer the risk that was chosen.
How far it has drifted
Defaults hold $72,000 of a $100,000 portfolio in something targeted at 60%, with a 5-point band.
A negative amount to sell means the holding has fallen below target and the correction is a purchase. A negative distance past the band means the drift has not yet reached the threshold and no action is due.
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How the number is built
Two divisions and a subtraction. The subtraction is the trade.
Current weight = holding ÷ portfolio. Amount to sell = holding − (portfolio × target).
Nothing has to go wrong for a portfolio to drift. The holding that performed best becomes the largest, which means the portfolio quietly concentrates into whatever has already risen.
A worked example
Take the defaults: $72,000 of a $100,000 portfolio, against a 60% target.
The current weight is 72,000 ÷ 100,000 = 72%.
The drift is 12 percentage points.
The target holding is 60,000, so 12,000 is sold — and with a 5-point band, the drift is 7 points past the threshold.
The band is what turns this from a calendar exercise into a rule. Below it nothing happens; above it the trade is already decided, so no judgment is required at the moment it fires.
Why the risk moved
A 60/40 portfolio that has become 72/28 is not the portfolio anyone chose. Its behavior in a fall is now closer to that of the larger holding, and the difference arrived without any decision.
Which is the actual argument for rebalancing, and it is not about returns. Selling winners to buy laggards has no reliable performance benefit; what it does reliably is hold the risk where it was set.
The cheapest correction uses new money. Directing contributions into whatever is underweight moves the portfolio toward target without a sale, without a spread, and without realizing a gain — which makes it the first tool to reach for in an account still receiving contributions.
Choosing a band
The band is the only real decision on this page, and it is a trade between two costs. Too tight and you pay transaction costs on drift that would have reversed by itself. Too wide and the portfolio spends long stretches carrying risk nobody chose.
Scale it to the holding’s own volatility rather than picking a round number. A 5-point band on a 60% holding is a drift of 8.3% of that position — noticeable but ordinary. The same 5 points on a 10% holding is a 50% move in it, so that position would have to double before the rule ever fired.
A common shape is a band proportional to the target: a quarter of the weight. On a 60% target that is 15 points, on 20% it is 5, on 10% it is 2.5 — so every holding is allowed a similar proportional drift rather than a similar absolute one.
Then write it down and stop revisiting it. A band chosen calmly and applied mechanically is doing the job; a band renegotiated each time it fires is just a slower version of deciding in the moment.
What it costs
Each rebalance is at least two trades and often several. Every one of them crosses the bid-ask spread, which on a thinly traded holding can be a real share of a normal day’s move.
In a taxable account the sale is a disposal, so the correction has a tax cost that a tax-sheltered account does not carry. Rebalancing inside a wrapper first, and using contributions outside it, avoids most of that.
Frequency has diminishing returns and increasing costs. Rebalancing monthly trades far more than rebalancing on a 5-point band and holds the weights barely closer, because most small drifts reverse on their own.
The original data
Of the 24,971 unique videos collected for this site’s search study, 2 have rebalancing in the title, neither instruction-shaped, at a median of 18,616 views across 2 channels — and 0% are calculator-shaped. Portfolio beta appears in 3 at 45 and index-fund investing in 132 at 69,951.
Two videos on the one portfolio action that has to be repeated for decades. Allocation gets covered constantly and the maintenance of it almost never, which is the same imbalance this site found across every operational subject.
The question: One holding has grown to half the portfolio. Trim it?
The answer is that the band already answered it, which is the point of having one. Deciding in the moment means deciding while the holding is the one that has been rewarding you, and that is the least reliable moment to judge whether it should be smaller. The band was set when nothing was at stake, and it exists precisely so this decision does not have to be made under the influence of a good run.
When it fails
Rebalancing into a persistent decline is the case that tests the rule hardest. The band fires, the correction means buying more of whatever is falling, and it fires again a quarter later for the same reason. The rule is behaving exactly as designed and there is no signal inside it that distinguishes an asset in a temporary drawdown from one in permanent decline — which is why an allocation should only contain things you are willing to keep buying.
The second failure is rebalancing too often. Costs are certain and the benefit is not.
A third is ignoring the tax bill in a taxable account. The trade has a price beyond the spread.
A fourth is rebalancing across accounts as though they were one. Wrappers differ.
A fifth is treating drift as an error. It is the arithmetic of a portfolio working.
And a sixth is setting a band so tight it never stops trading. A 1-point band on a volatile holding is a subscription to transaction costs.
Related
Asset allocation is where the target weights are decided. Diversification is what drift quietly erodes. And index funds is usually what is being rebalanced.
The reason to use a band rather than a date is that a calendar has no idea what the portfolio is doing. Quarterly rebalancing trades when nothing has moved and waits when everything has. A band does nothing for years and then acts exactly when the allocation stopped being the one you chose, which is the only moment the trade was ever for.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.