Portfolio rebalancing calculator

Why rebalancing matters

Over time, your winners grow and your laggards shrink, so a portfolio that started at 60% stocks can drift to 75% - quietly taking on more risk than you intended. Rebalancing sells some of what grew and buys what fell to restore your target mix. It keeps your risk where you want it and mechanically enforces buy-low, sell-high. This calculator shows exactly what to trade.

Worked example

A $100,000 portfolio holding $70,000 stocks and $30,000 bonds, with a 60% stock target:

• Current allocation: 70% stocks / 30% bonds - 10 points over target
• Target: $60,000 stocks / $40,000 bonds
• Trades: sell $10,000 of stocks, buy $10,000 of bonds

After the trades you are back to 60/40 and your risk is reset.

When and how to rebalance

• On a schedule - once a year is plenty for most investors.
• On a threshold - whenever an allocation drifts more than ~5 points from target.
• With new money - direct fresh contributions to the underweight asset so you rebalance by buying rather than selling, which avoids realizing gains.

Mind the taxes

Selling appreciated assets in a taxable account realizes capital gains. To keep rebalancing efficient:

• Do it inside IRAs and 401(k)s, where trades are not taxed.
• Use new contributions and dividends to top up the lagging asset.
• If you must sell in a taxable account, consider pairing it with tax-loss harvesting to offset the gains.

Common mistakes

• Rebalancing too often, racking up taxes and costs.
• Letting a portfolio drift for years and waking up far riskier than intended.
• Forgetting that selling winners in a taxable account triggers capital gains.

To choose the target mix in the first place, use the asset allocation calculator; to offset gains from selling, see the tax-loss harvesting calculator.