What is Portfolio Rebalancing?
Portfolio rebalancing calculates the trades required to restore a portfolio to its target asset allocation after market movements have caused drift. When equities outperform, they grow to an oversized share of the portfolio, increasing risk beyond the investor's intended level. Rebalancing systematically sells winners and buys underperformers, enforcing a buy-low/sell-high discipline. Frequency of rebalancing (calendar-based vs threshold-based) involves a trade-off between staying close to targets and incurring transaction costs and tax events. This calculator shows current allocation vs target and computes the dollar amounts to buy or sell for each asset to reach the target.
Formula
Current Weight = Current Value / Total Portfolio Value
Trade Required = (Target Weight − Current Weight) × Total Portfolio Value
Calculator
How to Use
- 1Enter current values: The current market value of each asset class or holding.
- 2Enter target weights: Your desired allocation as a percentage of total portfolio (must sum to 100%).
- 3Read trade amounts: Positive = buy; negative = sell. These are the dollar amounts needed to reach target allocation.
- 4Consider tax and costs: In taxable accounts, prioritise rebalancing via new contributions or tax-loss harvesting rather than selling appreciated positions.
Worked Example
Example: 60/40 portfolio after equity rally
Equities (current)
68% ($68k)
Bonds (current)
32% ($32k)
Target Equity
60%
Target Bonds
40%
Total = $100k. Target equity = $60k, current = $68k → sell $8,000 of equities. Target bonds = $40k, current = $32k → buy $8,000 of bonds. This restores the 60/40 target and reduces the portfolio's equity risk after the rally.