How it works
A target allocation is a promise you make about risk — 70% stocks, 25% bonds, 5% cash — and the market breaks it for you. After a strong rally the stock sleeve grows faster than the rest, the portfolio quietly becomes bolder than the plan, and rebalancing is the act of selling some of what ran hot and buying what lagged to restore the mix. Enter the current value of each sleeve and your targets, and the calculator returns the exact dollar amount to move in each — a positive figure is a buy, a negative one a sell — plus your current stock weight so the drift is visible. It also judges the drift: under a point, no trade is worth the friction; past five points, most planners treat it as a trigger. Two habits make rebalancing cheap. Prefer doing it with new contributions and dividends, steering fresh money to the underweight side instead of selling — in a taxable account that avoids realizing gains. And hold the rebalancing trades inside a 401(k) or IRA where possible, since sales there trigger no tax at all. The deeper point: rebalancing is not about squeezing return, it is about holding the risk level you actually chose.
Formula
Adjustment = target% x total value - current value, per sleeve
Tips
- Drift past five points is the common trigger; under a point, skip the trade.
- Rebalance with new contributions first — fresh money avoids a taxable sale.
- Do the selling inside a 401(k) or IRA, where trades trigger no tax.
- Rebalancing sells winners and buys laggards — it enforces discipline, not timing.
- The goal is holding your chosen risk level, not chasing extra return.
Frequently asked questions
- What is portfolio rebalancing?
- Restoring your target allocation after market moves have drifted it. If a 70% stock target becomes 82% after a rally, rebalancing sells some stock and buys bonds to return to the mix. It holds your risk level constant, selling what ran hot and buying what lagged.
- How often should I rebalance?
- Either on a fixed schedule (annually is common) or when drift passes a threshold — five percentage points is the usual trigger. Under a point of drift, no trade is worth the friction. Both approaches beat never rebalancing; pick the one you will actually follow.
- How do I rebalance without paying tax?
- Use new contributions and dividends first — steer fresh money to the underweight sleeve instead of selling anything. And place rebalancing trades inside a 401(k) or IRA, where sales trigger no tax. In a taxable account, harvest any losses to offset gains you must realize.
- What does a negative adjustment mean?
- Sell that much of the sleeve. A negative stock figure means the stock holding has grown past its target — the market made you bolder than the plan — so you sell the excess. A positive figure is a buy for a sleeve that fell behind.
- Does rebalancing improve returns?
- Not reliably, and that is not its purpose. It enforces a sell-high, buy-low discipline that can add a small return bonus, but its real job is risk control: after a long rally, an unrebalanced portfolio is taking more risk than the one you deliberately chose.