Portfolio Rebalancing Calculator

Portfolio rebalancing is the process of buying and selling holdings to move a portfolio's actual allocation back toward a stated target allocation. Over time, assets that perform differently will grow at different rates, causing the portfolio's weights to drift away from the original policy. Rebalancing corrects that drift, either back to the target exactly, to the edge of an acceptable band, or partway toward the target, depending on the policy chosen.

A rebalancing band (sometimes called a tolerance band) defines an acceptable range around each target weight, for example, ±5 percentage points. The portfolio is only rebalanced when a sleeve drifts outside its band. This approach reduces trading frequency and associated costs compared to calendar-only rebalancing, while still preventing large structural drift. The trade-off is that the portfolio spends more time away from its target weights between rebalancing events.

A partial reset means the calculator applies only a fraction of the full correction rather than returning every sleeve exactly to its target weight. For example, if a sleeve is $10,000 underweight and you choose a 50% partial reset, the calculated trade is $5,000 rather than $10,000. This is sometimes used when transaction costs are significant, when the rebalancing policy intentionally allows persistent drift, or when new cash is available to absorb only part of the gap without selling other sleeves.

Post-trade weights may differ from target weights for several reasons: the minimum trade size setting may have suppressed one or more small trades; the band edge rule brings sleeves only to the band boundary, not to target; or the partial reset rule moves sleeves only partway. Floating-point arithmetic can also introduce sub-cent rounding differences. In each case the calculator explains which trades were suppressed or truncated so you can trace the discrepancy.

No. The calculator performs pure arithmetic on the values you enter and does not model taxes on realized capital gains, trading commissions, bid-ask spreads, borrow costs, or any other friction. Real rebalancing decisions must account for the after-tax cost of selling appreciated assets, which can make it more efficient to direct new cash contributions toward underweight sleeves rather than selling overweight ones. A qualified tax professional or financial advisor can help model the after-tax cost of different rebalancing approaches for a real account.

There is no universally optimal rebalancing frequency. Academic research generally finds that annual or threshold-based (band) rebalancing captures most of the structural benefit of maintaining target weights while keeping trading costs manageable. Very frequent rebalancing increases transaction costs and tax friction without proportionally reducing drift risk. The right policy depends on the portfolio's asset composition, tax situation, expected drift rates, and the cost structure of the account. This tool models the arithmetic of any rebalancing decision but does not prescribe a frequency.

For measuring drift, the same asset held in two accounts is one exposure, so the amounts are combined into a single line against a single target weight. Execution is the separate step, because the trade to correct that combined line still has to be placed somewhere, and account type determines the tax and cost consequences. Entering the same asset as two lines with two targets splits one allocation decision into two and usually produces more trading than the policy requires.

No. The calculator produces amounts, not a sequence. Ordering depends on facts outside the calculation: whether a sale must settle before its proceeds can fund a purchase, whether an account has cash available, and whether any leg carries a tax consequence worth timing separately. In practice a rebalance funded by sales is usually sequenced sell first then buy, but that is a settlement constraint rather than something the arithmetic determines.

The figures are a hypothetical illustration of what would bring the entered weights back to the entered targets. They exclude taxes and transaction costs, use the prices entered rather than live quotes, and assume the position list is complete and current. Any of those gaps changes the correct trade. Treating the output as a calculation to check against a brokerage account, rather than as an instruction to submit, is what the tool is built for.