Why portfolios drift
You choose a mix, say 60% stocks, 35% bonds and 5% cash, because it matches the risk you are willing to take. Then markets move. After a few good years for stocks, the stock share grows and the portfolio becomes riskier than you planned. Rebalancing brings it back by selling some of what has grown and buying what has lagged.
How the calculator works
For each asset class:
Trade = (total portfolio + new money) × target weight − current value
A positive number is a purchase and a negative number a sale. The drift is the largest gap, in percentage points, between a current weight and its target.
The calculator also finds the new money needed to rebalance without selling: the portfolio size at which the most overweight class would be exactly at its target, minus the current total.
Worked example
The portfolio holds $72,000 in stocks, $22,000 in bonds and $6,000 in cash, a total of $100,000. The target is 60 / 35 / 5.
- Current weights: 72% / 22% / 6%. The largest drift is 13 points, in bonds.
- Stocks: 60,000 − 72,000 = sell $12,000.
- Bonds: 35,000 − 22,000 = buy $13,000.
- Cash: 5,000 − 6,000 = sell $1,000.
To rebalance only with new money, stocks would need a total portfolio of 72,000 ÷ 0.60 = $120,000, so $20,000 of new money split between bonds and cash would do it.
When to rebalance
- Calendar rule: once a year, on a date you remember, such as your birthday.
- Threshold rule: whenever a class drifts more than 5 percentage points, or more than 20 to 25% of its own target.
- Combined: check every quarter, act only when a threshold is crossed.
Rebalancing more often than necessary adds trading costs and taxes without much benefit. The discipline is what matters: it makes you sell high and buy low when emotions push the other way.
Keeping taxes low
- Make the trades inside tax-advantaged accounts such as a 401(k), 403(b) or IRA, where sales have no immediate tax cost.
- In taxable accounts, direct new contributions, dividends and interest to the underweight classes.
- If you must sell in a taxable account, prefer lots with losses or long-term gains, and watch the wash-sale rule if you sell at a loss.
Target-date funds and many robo-advisors rebalance automatically. The calculator handles three classes; for more, group your holdings into broad categories first.
This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.