Portfolio Rebalance Calculator Formula

Understand the math behind the portfolio rebalance calculator. Each variable explained with a worked example.

Use the Portfolio Rebalance Calculator

Formulas Used

Stocks: Buy/Sell

stocks_trade = total_value * (target_stocks - stocks_pct) / 100

Bonds: Buy/Sell

bonds_trade = total_value * (target_bonds - bonds_pct) / 100

Cash: Add/Remove

cash_trade = total_value * (target_cash - cash_pct) / 100

Total Rebalance Volume

total_trades = abs(total_value * (target_stocks - stocks_pct) / 100) + abs(total_value * (target_bonds - bonds_pct) / 100) + abs(total_value * (target_cash - cash_pct) / 100)

Variables

VariableDescriptionDefault
total_valueTotal Portfolio Value(USD)100000
stocks_pctCurrent Stock Allocation(%)70
bonds_pctCurrent Bond Allocation(%)25
cash_pctCurrent Cash Allocation(%)5
target_stocksTarget Stock Allocation(%)60
target_bondsTarget Bond Allocation(%)30
target_cashTarget Cash Allocation(%)10

How It Works

Portfolio Rebalancing

Rebalancing restores your portfolio to its target allocation after market movements cause drift.

Why Rebalance?

  • Maintains your intended risk level
  • Forces you to sell high and buy low
  • Prevents overconcentration in one asset class

    • How to Rebalance

    Trade Amount = Portfolio Value x (Target% - Current%) / 100

    Positive values mean buy; negative values mean sell.

    When to Rebalance

  • Calendar-based: quarterly, semi-annually, or annually
  • Threshold-based: when any allocation drifts 5%+ from target

    • Worked Example

    $100,000 portfolio: 70% stocks, 25% bonds, 5% cash. Target: 60/30/10.

    total_value = 100000stocks_pct = 70bonds_pct = 25cash_pct = 5target_stocks = 60target_bonds = 30target_cash = 10
    1. 01Stocks: sell $100,000 x (60% - 70%) = -$10,000
    2. 02Bonds: buy $100,000 x (30% - 25%) = +$5,000
    3. 03Cash: add $100,000 x (10% - 5%) = +$5,000
    4. 04Total volume = $10,000 + $5,000 + $5,000 = $20,000

    Frequently Asked Questions

    How often should I rebalance?

    Most research suggests annual or semi-annual rebalancing. More frequent rebalancing generates unnecessary transaction costs and taxes without meaningful benefit. A 5% drift threshold works well.

    Can I rebalance with new contributions?

    Yes, this is the most tax-efficient approach. Direct new contributions to underweight asset classes until allocation is restored. This avoids selling (and potential capital gains) entirely.

    Does rebalancing hurt returns?

    Over long bull markets, rebalancing may reduce returns by selling winning assets. However, it significantly reduces volatility and maximum drawdown. The risk-adjusted returns from a rebalanced portfolio are typically superior.

    Ready to run the numbers?

    Open Portfolio Rebalance Calculator