How to use the portfolio rebalancing calculator
The page has two tools: one for the trades you need today, and one for choosing a rebalancing rule.
Trades to rebalance:
- List each holding with its current market value and its target weight. The targets must add up to 100%. The example is a four-fund portfolio worth $110,000.
- Enter any new cash you are adding. Use a negative number for a withdrawal, for example -20000 to take out $20,000.
- Choose how to rebalance. Buy and sell brings every holding exactly to target. New cash only never sells when you add money (and never buys when you withdraw): it sends the cash to the most underweight holdings first.
The trade list shows each holding’s drift, the trade, and the weight after the trade.
Calendar vs threshold simulates a stock and bond portfolio. Enter the expected return and volatility of each, their correlation, the target stock weight, the width of the threshold band, your trading cost per side and the number of years. Each run uses the same 1,000 random paths, so the results are repeatable and every rule is tested on exactly the same markets.
The formulas
Target valuei = T × Target weighti
Tradei = Target valuei − Current valuei
Drifti = Current weighti − Target weightiA positive trade is a purchase and a negative trade a sale. Drift is measured in percentage points: a 60% target held at 66% has drifted +6 points.
With new cash only, the calculator buys bi = max(0, k × Target weighti − Current valuei) and picks k so that the purchases add up to the new cash. The holdings that receive money end up in proportion to their targets, and the overweight ones are left alone. Withdrawals work the same way in reverse, selling the most overweight holdings first.
Trading cost = cost per side × (amount sold + amount bought)μ is the expected annual return and σ the annual volatility of each asset; z is a standard normal draw, correlated between stocks and bonds. A threshold rule rebalances at a month-end when the stock weight is more than the band away from target.
A worked example
Today’s trades. The portfolio is worth $110,000.00 and you add $5,000. After a strong run, the US stock fund is the largest holding and has drifted 11.4% above its 45% target, measured in percentage points. Rebalancing to the new total of $115,000.00 means selling $10,250.00 of it and buying $15,250.00 of the other three: $5,000.00 of the international fund, $9,500.00 of the bond fund and $750.00 of cash. The total traded is $25,500.00.
With new cash only, the $5,000 goes to the two most underweight holdings: $1,200.00 to the international fund and $3,800.00 to bonds. Nothing is sold, but the largest drift is still 8.9%. Closing it without any sale would take $27,777.78 of new money.
The simulation. A $100,000 portfolio starts at 60% stocks. Stocks return 7% a year on average with 16% volatility; bonds return 4% with 6%. Left alone for 20 years, the stock share drifts to a median of 68.6%, and in one path out of ten it ends above 85.1%. A 5-point band rebalances 0.48 times a year on average, at a total trading cost of about $210 over the whole period.
Calendar vs threshold: what the simulation shows
With the default inputs, the four rules compare like this (medians across the same 1,000 paths):
| Rule | Median ending value | Median volatility | Average drift | Rebalances a year | Average trading cost |
|---|---|---|---|---|---|
| Never | $275,911 | 10.7% | 9.4% | 0.00 | $0 |
| Annual | $285,550 | 10.1% | 2.2% | 1.00 | $251 |
| Quarterly | $286,925 | 10.1% | 1.3% | 4.00 | $481 |
| 5-point band | $287,411 | 10.1% | 2.0% | 0.48 | $210 |
Three things stand out.
Drift is the real risk of not rebalancing. The never-rebalanced portfolio ends with far more in stocks than the investor chose, and its volatility is higher. Its average ending value, $331,468, is the highest of the four because the best paths are the ones where stocks took over the portfolio. Its median is lower. Not rebalancing is a bet that the riskier asset keeps winning, made without deciding to make it.
A band trades less for similar control. The 5-point band kept the average drift close to the annual rule while trading about half as often, because it acts only when markets have actually moved. Quarterly rebalancing held the drift lowest but traded four times a year and cost the most.
Band width is a dial. A 2.5-point band traded 1.52 times a year with an average drift of 1.31%. A 10-point band traded only 0.13 times a year, but let the drift average 3.59% and the worst drift reach a median of 10.86%.
Drift risk vs costs and taxes
At 10 bps a side, trading costs barely register next to a six-figure portfolio. They matter more when the cost of a trade is higher, and the biggest cost of a sale is often tax rather than the spread. Setting the cost to 100 bps, as a rough stand-in for the tax on gains, changes the ranking: the median ending value falls to $280,970 for quarterly rebalancing, $282,735 for annual and $284,561 for the band.
The trade-off, in short:
- Rebalance too rarely and the portfolio’s risk drifts away from the plan, usually upward after long bull markets, exactly when a fall would hurt most.
- Rebalance too often and you pay spreads, commissions and taxes to correct moves that would often have reversed on their own.
Common practical answers are an annual check, a band of around 5 percentage points (with a relative band, such as 25% of the target, for small allocations), or a mix of both: look once a year and trade only if the band has been crossed. Using new contributions, withdrawals and dividends to lean against the drift avoids most sales altogether.
Why rebalancing is not a return booster
It is tempting to read the median table as proof that rebalancing adds return. It does not prove that. When the expected gap between the assets is wider, for example 10% for stocks and 2% for bonds, the never-rebalanced portfolio comes out ahead on the median as well: $401,923 against $350,880 for annual rebalancing. It gets there by ending at 85.6% stocks, with volatility of 12.1% against 10.2%. Rebalancing is best understood as risk control: it keeps the portfolio you chose.
What this calculator does not include
- Taxes, explicitly. The trade list does not know your cost basis. In a taxable account, sales may realize gains; our capital gains tax calculator estimates the bill.
- Minimum trade sizes and whole shares. Trades are exact dollar amounts.
- Realistic markets. The simulation draws independent, normally distributed monthly returns with fixed means, volatilities and correlation. Real markets have fat tails, trends, reversals and correlations that change over time, all of which affect which rule wins.
- More than two assets in the simulation, intra-month rebalancing, and cash flows during the simulated period.