Asset Allocation Rebalancing Helper

You carefully chose your target allocation—maybe 70% stocks, 20% bonds, 10% cash— based on your risk tolerance, time horizon, and goals. But markets don't stand still. After a year of stock gains, you might find yourself at 80% stocks. Suddenly, you're taking more risk than you intended. This is where rebalancing comes in.

Rebalancing means adjusting your portfolio back to your target allocation. It's the disciplined act of selling what's grown (selling high) and buying what's lagged (buying low). It sounds simple, but without a systematic approach, most investors never do it—or do it randomly based on emotions.

This calculator helps you see exactly where your current allocation stands versus your target, calculates the specific trades needed to rebalance, and lets you choose whether to use new contributions only or allow selling. It removes the guesswork and shows you the exact buy/sell amounts.

Whether you're managing a simple three-fund portfolio or a more complex allocation, systematic rebalancing keeps your risk in check and can improve long-term returns through disciplined "sell high, buy low" behavior.

What Is Asset Allocation?

Asset allocation is how you divide your investments among different asset classes:

• Stocks (equities): Higher growth potential, higher volatility
• Bonds (fixed income): Lower returns, more stability
• Cash (money market): Liquid, safe, minimal returns
• Other: Real estate, commodities, alternatives

Your target allocation reflects your risk tolerance. Aggressive investors might hold 90% stocks; conservative investors might hold 60% bonds. The right allocation depends on your goals, timeline, and ability to handle volatility.

How Portfolio Drift Happens

Market movements cause your allocation to drift from targets. If stocks rise 20% while bonds stay flat, a 60/40 portfolio becomes roughly 65/35. This "drift" happens naturally and continuously. Without intervention, your portfolio gradually becomes something you didn't intend.

Why Rebalancing Matters

Rebalancing serves two critical purposes:

• Risk management: Prevents your portfolio from becoming riskier (or more conservative) than intended
• Disciplined investing: Forces you to sell high and buy low systematically

Common Rebalancing Triggers

There are two main approaches to deciding when to rebalance:

• Calendar-based: Rebalance on a schedule (annually, quarterly)
• Threshold-based: Rebalance when any asset drifts beyond a set percentage (e.g., ±5%)

Threshold-based approaches typically work better—they trigger rebalancing when it's actually needed, not just because a calendar says so. This calculator uses threshold-based logic with customizable drift bands.

Step 1: Enter Your Current Holdings

Input the current value of each asset class in your portfolio. You can use broad categories (stocks, bonds, cash) or be more specific (US stocks, international stocks, corporate bonds, etc.). Include all investment accounts for a complete picture.

Step 2: Set Your Target Allocation

Enter your target percentage for each asset class. These should sum to 100%. Your target allocation should reflect your risk tolerance, time horizon, and investment goals. Common examples: 60/40 (moderate), 80/20 (growth), 40/60 (conservative).

Step 3: Set Your Drift Threshold

Choose how much drift to tolerate before rebalancing. A 5% threshold means you'll rebalance if any asset is more than 5 percentage points away from target. Tighter thresholds (3%) mean more frequent rebalancing; wider thresholds (10%) mean less.

Step 4: Choose Rebalancing Mode

Select your preferred approach:

• Contribution-only: Use new money to buy underweight assets (avoids selling, tax-efficient)
• Trades-allowed: Sell overweight assets and buy underweight (faster rebalancing, may trigger taxes)

Step 5: Enter New Contribution (Optional)

If you have new money to invest, enter it here. The calculator can direct contributions to underweight assets, helping rebalance while you add funds.

Step 6: Review Rebalancing Trades

The calculator shows exactly what to buy and sell to reach your target allocation. You'll see before/after allocations, the specific dollar amounts, and whether rebalancing is even needed based on your drift threshold.

Calculating Current Allocation

Example: $70,000 stocks in a $100,000 portfolio = 70% stocks allocation.

Calculating Drift

Example: 70% current - 60% target = +10% drift (overweight by 10 points).

Calculating Target Value

Example: $100,000 portfolio × 60% = $60,000 target for stocks.

Calculating Trade Amounts

Example: $60,000 target - $70,000 current = -$10,000 (sell $10,000 stocks).

Example Full Rebalancing

Portfolio: $100,000 total. Target: 60% stocks, 30% bonds, 10% cash. Current: $70,000 stocks (70%), $20,000 bonds (20%), $10,000 cash (10%).

• Stocks: Target $60,000, Current $70,000 → Sell $10,000
• Bonds: Target $30,000, Current $20,000 → Buy $10,000
• Cash: Target $10,000, Current $10,000 → No change

Result: Sell $10,000 stocks, use proceeds to buy $10,000 bonds. New allocation: 60/30/10—right on target.

Scenario 1: Post-Bull Market Rebalancing

Situation: After a strong stock market year, Jessica's 70/30 portfolio (target) drifted to 82/18. She has $150,000 total.

Analysis: Stocks: $123,000 (82%), Bonds: $27,000 (18%). Target: Stocks $105,000 (70%), Bonds $45,000 (30%). Need to sell $18,000 stocks and buy $18,000 bonds.

Decision: Since this is in her 401(k) (no tax consequences), she executes the trades immediately. If taxable, she might use contribution-only mode and direct future savings to bonds.

Scenario 2: Rebalancing with New Contribution

Situation: Mike has a $50,000 portfolio at 65% stocks / 25% bonds / 10% cash (target: 60/30/10). He's adding $5,000 this month.

Analysis: Instead of selling stocks, Mike directs the $5,000 contribution entirely to bonds. After contribution, he's closer to 59% stocks / 32% bonds / 9% cash—much closer to target without any selling.

Benefit: No capital gains triggered, no trading fees on sells, natural rebalancing through smart contribution allocation.

Scenario 3: Retirement Account Annual Review

Situation: Sarah, 45, reviews her IRA annually. Target: 80/20 (stocks/bonds). Current: 84/16 after a good year. Total: $200,000.

Analysis: Drift is 4% on stocks—within a 5% threshold. Sarah could skip rebalancing this year since she's close to target.

Decision: Sets a reminder to check in 6 months. If drift exceeds 5%, she'll rebalance. Avoiding unnecessary trading is part of the strategy.

Scenario 4: Tax-Efficient Rebalancing Across Accounts

Situation: David has $100,000 in taxable brokerage and $100,000 in IRA. His combined portfolio is overweight stocks.

Analysis: Rather than sell stocks in the taxable account (triggering capital gains), David rebalances entirely within the IRA. Sells IRA stocks, buys IRA bonds. Same overall allocation, zero tax impact.

Key insight: When possible, rebalance within tax-advantaged accounts to avoid tax drag on the rebalancing process itself.

Scenario 5: Three-Fund Portfolio Rebalancing

Situation: Emily uses a classic three-fund portfolio: 50% US stocks, 30% international stocks, 20% bonds. After market movements: 55/32/13.

Analysis: Bonds are 7 points underweight—beyond her 5% threshold. She needs to sell some of both stock categories to bring bonds back to 20%.

Action: Calculator shows: Sell ~$10,000 US stocks, sell ~$3,000 international stocks, buy ~$13,000 bonds. Restores target allocation exactly.

• ❌ Rebalancing too frequently: Trading costs and taxes add up. If you're rebalancing monthly, you're probably overdoing it. Annual or threshold-triggered rebalancing is usually sufficient.
• ❌ Never rebalancing: The opposite problem. If you never rebalance, your portfolio can drift dramatically from your intended risk level. A 60/40 portfolio can become 80/20 over time without intervention.
• ❌ Ignoring taxes when selling in taxable accounts: Rebalancing by selling appreciated assets triggers capital gains taxes. Consider contribution-only rebalancing, tax-loss harvesting, or rebalancing within tax-advantaged accounts.
• ❌ Using thresholds that are too tight: A 1% drift threshold triggers constant rebalancing for negligible benefit. 5% is a reasonable starting point; 3-10% is a typical range depending on preferences.
• ❌ Emotional rebalancing: Don't rebalance because you "feel" like stocks are too high or bonds are a bad deal. Stick to your systematic approach. Emotions lead to market timing, which usually backfires.
• ❌ Forgetting about all accounts: View your allocation across all accounts combined. Rebalancing just your IRA while ignoring your 401(k) gives an incomplete picture. Calculate total portfolio allocation first.
• ❌ Not adjusting allocation over time: A 25-year-old and a 55-year-old shouldn't have the same target allocation. As you age, gradually shift toward more conservative allocations. Rebalancing to an outdated target defeats the purpose.

1. Rebalance with Contributions

The most tax-efficient approach: direct all new contributions to underweight asset classes until you're back at target. This avoids selling entirely. Works well if you're making regular contributions and drift is moderate.

2. Rebalance with Dividends and Distributions

Instead of reinvesting dividends automatically, collect them in a settlement fund and periodically invest in underweight assets. This provides natural rebalancing cash flow without selling.

3. Cross-Account Rebalancing

View all accounts as one portfolio. If you're overweight stocks overall, sell stocks in your IRA (no tax impact) rather than your taxable account. This lets you maintain tax-efficient asset location while still rebalancing.

4. Tax-Loss Harvesting During Rebalancing

If you must sell in a taxable account, preferentially sell lots that are at a loss. The realized loss offsets gains elsewhere, reducing the tax cost of rebalancing. Pair rebalancing with tax-loss harvesting for efficiency.

5. Rebalancing Bands (Not Just Point Targets)

Instead of targeting exactly 60% stocks, target a range like 55-65%. Only rebalance when you breach the band. This reduces trading while still controlling drift. The calculator's drift threshold implements this concept.

6. Opportunistic Rebalancing

Combine calendar and threshold approaches: check allocation quarterly, but only rebalance if drift exceeds threshold. This balances discipline with avoiding unnecessary transactions.

7. Glide Path Rebalancing

For retirement savers, gradually adjust your target allocation as you age (becoming more conservative). Target-date funds do this automatically, but DIY investors should update their targets periodically—say, reducing stock allocation by 1% per year after age 40.