Portfolio Rebalancing Calculator

What this calculator tells you

Over time, the holdings in a portfolio grow at different speeds, so the mix drifts away from the one you chose. A portfolio that started at 60% shares and 40% bonds may end up 70% shares after a strong stock market year. This calculator shows the buy and sell trades needed to bring the portfolio back to its target allocation.

Rebalancing is a discipline rather than a forecast. It does not predict which holding will do well next. It restores the level of risk you intended to take, by trimming what has grown and adding to what has lagged.

How the trades are worked out

The calculator takes the total value of the portfolio and multiplies it by each target percentage to find the value each holding should have. It then compares that target value with the current value. A holding above its target is a sale, and a holding below its target is a purchase. The trades net to zero, so the money raised from sales funds the purchases.

A worked example

Suppose your portfolio is worth 10,000, with 7,000 in shares and 3,000 in bonds, against a target of 60% shares and 40% bonds. The target values are 6,000 in shares and 4,000 in bonds. The shares are 1,000 above target, so you sell 1,000 of shares, and the bonds are 1,000 below target, so you buy 1,000 of bonds. Afterwards, the portfolio is back at 60% and 40%.

Choosing when to rebalance

Two common approaches are rebalancing on a calendar, such as once a year, and rebalancing when a holding moves a set distance from its target, such as five percentage points. A calendar schedule is simple to follow. A threshold approach trades less often when markets are calm, and acts sooner when a large move happens.

Costs, tax and limits

Each trade can incur dealing costs, spreads and, in taxable accounts, tax on any gain realised by selling. These costs reduce the benefit of rebalancing, so it is worth checking the cost of the trades before acting. In some accounts, such as tax-advantaged retirement accounts, selling creates no immediate tax, which makes rebalancing easier.

The calculator uses current values and a single target mix. It does not include trading costs, tax, minimum trade sizes, or the fact that some holdings cannot be bought in small amounts. Rounding to whole units may leave a small difference from target.

Rebalancing new money first

Before selling anything, consider directing new contributions towards the holdings below target. This can bring the mix back into line without triggering sales, and it avoids costs and taxes on gains. Use the calculator to see how much new money would be needed to close the gap, then decide whether sales are still required.

Using the result

Use the trades to restore your target mix, and consider directing new contributions to the underweight holdings first, which can reduce or avoid the need to sell. Keep a note of the date and the reason for each rebalance, so you can review whether the approach is working for your goals.

Checking the drift before acting

Before rebalancing, check that the drift is real and not a temporary move. Look at the change over several months, and set a threshold that justifies a trade after costs. Small drifts that cost more to correct than they cost in risk are better left alone, and the calculator can help you see the size of the trades needed before you commit.