WhitmanTrading

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.

Amount to sell 12000.00
Current weight 72.00%
Drift from target 12.00percentage points
How far past the band 7.00percentage points

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

A candlestick chart with a target level and a higher current level.
Selling what grew to buy back what did not. Illustrative chart - not real market data.

Two divisions and a subtraction. The subtraction is the trade.

Current weight = holding ÷ portfolio. Amount to sell = holding − (portfolio × target).

The first half of a price series where one line outpaces another.
Weights drift on their own as prices move. Illustrative chart - not real market data.

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 second half of a price series with a tolerance band drawn.
A band decides when, rather than a date. Illustrative chart - not real market data.

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 judgement is required at the moment it fires.

Why the risk moved

A window of price bars where one component dominates.
A concentrated portfolio is a different portfolio. Illustrative chart - not real market data.

A 60/40 portfolio that has become 72/28 is not the portfolio anyone chose. Its behaviour 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.

A section of the price series with fresh capital added.
New money can correct drift without selling. Illustrative chart - not real market data.

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 realising 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

Price bars with a series of transactions marked.
Every rebalance is trades, and trades are not free. Illustrative chart - not real market data.

Each rebalance is at least two trades and often several. On this site’s shared series a round trip measures about 2% of the median bar range of 0.493, and it exceeds 10% of the bar on 15 of 576 bars. The figures are in research/series-measurements.json.

Price bars with a portion removed at a sale point.
In a taxable account it also realises gains. Illustrative chart - not real market data.

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.

A candlestick chart annotated with the round-trip cost of a switch.
Rebalancing more often costs more and changes less. Illustrative chart - not real market data.

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 in research/search-study-corpus.jsonl, 2 have an instruction-shaped title about rebalancing, at a median of 18,616 views across 2 channels — and 0% are calculator-shaped. Portfolio beta appears in 4 at 313 and index-fund investing in 26 at 88,014. The counts come from site/rank_tools2.py, which deduplicates by video id.

A candlestick series with several gaps, the largest of them marked.
A sharp fall is when the band fires and nobody wants to act. Illustrative chart - not real market data.

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.

A stretch of price bars cut short at a decision point.
One holding has grown to half the portfolio. Trim it? Illustrative chart - not real market data.

The answer to the question on that chart 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

A candlestick chart with a volume histogram beneath it.
A thin holding is expensive to trim. Illustrative chart - not real market data.

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.

Asset allocation is where the target weights are decided. Diversification is what drift quietly erodes. And index funds is usually what is being rebalanced.

What I actually do

The reason I 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 I 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.