Portfolio Rebalancing Calculator
Introduction
Portfolio rebalancing is the process of realigning the proportions of assets in your investment portfolio to match your desired target allocation. Over time, market fluctuations can cause your portfolio's asset distribution to drift away from your original plan, potentially increasing risk or reducing expected returns. This calculator helps you determine the trades needed to restore your portfolio to the target allocation by comparing current holdings with desired percentages.
Formulas Used in Portfolio Rebalancing
The calculator works by first determining the total current value of your portfolio:
where n is the number of asset classes.
Next, it calculates the ideal dollar amount for each asset based on the target percentage:
The difference between the target value and current value indicates the amount to buy (if positive) or sell (if negative):
Interpreting the Results
The output shows, for each asset, how much you should buy or sell to achieve your target allocation. Positive values indicate purchases, while negative values indicate sales. By executing these trades, your portfolio will be realigned to your desired risk and return profile.
Worked Example
Suppose your portfolio consists of three assets: Stocks, Bonds, and Cash, with current values and target allocations as follows:
- Stocks: $6,000, target 60%
- Bonds: $3,000, target 30%
- Cash: $1,000, target 10%
Total portfolio value is $10,000.
Calculating target values:
- Stocks: 60% of $10,000 = $6,000
- Bonds: 30% of $10,000 = $3,000
- Cash: 10% of $10,000 = $1,000
Comparing to current values, no trades are needed since the portfolio is already aligned.
If instead Stocks were $7,000, Bonds $2,000, and Cash $1,000, the trades would be:
- Stocks: Target $6,000 - Current $7,000 = -$1,000 (sell)
- Bonds: Target $3,000 - Current $2,000 = +$1,000 (buy)
- Cash: Target $1,000 - Current $1,000 = $0 (no trade)
Comparison Table
| Asset | Current Value ($) | Target % | Target Value ($) | Trade Amount ($) |
|---|---|---|---|---|
| Stocks | 7,000 | 60 | 6,000 | -1,000 |
| Bonds | 2,000 | 30 | 3,000 | +1,000 |
| Cash | 1,000 | 10 | 1,000 | 0 |
Limitations and Assumptions
- This calculator assumes no transaction costs, taxes, or market impact from trades.
- It does not account for minimum trade sizes or liquidity constraints.
- Target percentages should sum to 100%; otherwise, results may be inaccurate.
- Market prices can fluctuate after rebalancing, so periodic review is recommended.
- This tool is for informational purposes and does not constitute financial advice.
Frequently Asked Questions
Why is portfolio rebalancing important?
Rebalancing helps maintain your desired risk level by preventing any asset class from becoming too large or too small relative to your plan.
How often should I rebalance my portfolio?
There is no one-size-fits-all answer; common approaches include calendar-based (e.g., annually) or threshold-based (e.g., when allocations deviate by a set percentage).
Can I use this calculator for portfolios with more than three assets?
Yes, you can add additional assets and specify their current values and target percentages to calculate rebalancing trades.
Does the calculator consider tax implications?
No, it does not factor in taxes or transaction fees; consult a financial advisor for personalized guidance.
What if my target percentages do not add up to 100%?
The calculator assumes target percentages sum to 100%. If they do not, results may be misleading and should be adjusted accordingly.
How rebalancing preserves your risk profile
Market moves can push your portfolio away from its intended mix. Selling a portion of overweight assets and buying more of the underweight ones realigns exposure to match your goals. The calculator uses each asset’s target percentage to compute the ideal dollar value, then highlights the trade required to close the gap.
Formula for target holdings
The target amount for asset is
, where is the total portfolio value and is the target percentage. The recommended trade is simply , with positive values indicating buys and negative values indicating sells.
Strategy comparison
The sample table illustrates how tolerance bands influence rebalancing decisions for a classic 60/30/10 portfolio.
| Trigger | Stocks | Bonds | Cash |
|---|---|---|---|
| 5% drift band | Rebalance if outside 55–65% | Rebalance if outside 25–35% | Rebalance if outside 5–15% |
| Contribution only | Direct new funds to underweight assets | Use bond interest to top up equities | Maintain emergency buffer |
| Quarterly review | Check alignment every three months | Monitor duration risk alongside allocation | Set aside cash for tax payments |
Related planning tools
Coordinate your rebalancing plan with the Asset Allocation Calculator to confirm long-term targets. Before selling in taxable accounts, estimate the impact using the Capital Gains Tax Calculator. For retirement portfolios, sanity-check withdrawal rates with the Safe Withdrawal Rate Calculator to ensure your asset mix supports ongoing distributions.
| Asset | Current ($) | Target ($) | Action |
|---|