Portfolio Rebalancing Calculator

How portfolio rebalancing works (Omni-level explanation)

Portfolio rebalancing is the habit of bringing your investments back to your preferred mix (your target allocation). If you started with 60% stocks and 40% bonds, a strong stock market year can push you to 70/30 without you doing anything. That change is not just cosmetic — it can materially change the risk you’re taking. Rebalancing is how you keep your portfolio aligned with the risk profile you actually intended.

There are two big reasons people rebalance. First, it’s risk control. Your allocation is the dial that controls how volatile your portfolio can be. Second, it’s discipline. Rebalancing gives you a rules-based process for trimming what ran up and adding to what lagged, instead of guessing what will happen next month. You don’t need to “predict” the market for rebalancing to be useful — you just need a consistent plan.

Step 1: Add up your current portfolio value

The calculator begins by summing the current value of each asset you enter:

Total Portfolio Value = V₁ + V₂ + … + V_n

where Vᵢ is the current value of asset i (for example, your US stock ETF).

Step 2: Compute your current allocation (weights)

Next, we compute each asset’s current percentage:

Current % = (Asset Value ÷ Total Value) × 100

These current percentages show what your portfolio looks like today — not what you planned originally.

Step 3: Apply optional cash flow (contribution or withdrawal)

Real life usually includes cash movement: adding money every month, reinvesting dividends, or withdrawing for expenses. That matters because rebalancing should be done against the portfolio size you’ll have after the cash flow:

New Total = Total Value + Cash Flow

In this calculator, Cash Flow can be positive (you add money) or negative (you withdraw money). If your cash flow would reduce the portfolio to zero or below, the calculator blocks the result because targets would become meaningless.

Step 4: Convert target percentages into target dollar amounts

Target allocation is usually expressed in percentages, but trades happen in dollars. We translate each target % into a target dollar amount using:

Target $ = (Target % ÷ 100) × New Total

Once you see target dollars, rebalancing becomes a concrete question: “How far is each asset from its target dollars?”

Step 5: Drift and trade amount

The calculator reports drift as the difference between your current allocation and your target allocation, measured in percentage points (pp):

Drift (pp) = Current % − Target %

Then it computes the trade amount needed to reach target dollars:

Trade = Target $ − Current Value

If Trade is positive, you’re underweight and need to buy. If Trade is negative, you’re overweight and need to sell (or reduce buying in cash-only mode).

Full rebalance vs cash-only (why both matter)

A “pure” rebalance uses both buys and sells so that every asset lands on target. That’s the Full rebalance option. It’s common in tax-advantaged accounts (like retirement accounts) because selling doesn’t necessarily create immediate tax consequences.

In taxable accounts, selling winners can trigger capital gains taxes. That’s why many investors prefer a more conservative approach: use new contributions (and sometimes withdrawals) to push the portfolio back toward target first. That’s the idea behind Cash-only mode. When you add money, the calculator tries to allocate that cash into the underweight assets (without recommending sells). When you withdraw, it tries to sell the overweight assets first. You may not land perfectly on target after one cash-only rebalance — and that’s okay. It’s often the “lowest-friction” way to stay disciplined.

Tolerance bands (trade less, stay consistent)

A tolerance band is a simple rule that prevents constant micro-trading. Example: If your tolerance is ±5pp, then any asset whose drift is between -5pp and +5pp is treated as “close enough” and the calculator shows Hold. This approach helps when:

• You want fewer trades (especially in taxable accounts).
• You have many asset categories (small drifts are common).
• You prefer periodic rebalancing (monthly/quarterly) without obsessing over small moves.

Worked example (with numbers)

Suppose you have:

• US Stocks: $70,000 (target 60%)
• International Stocks: $20,000 (target 20%)
• Bonds: $10,000 (target 20%)

Total = $100,000. Current weights are 70%, 20%, 10%. Your stock exposure is higher than planned. With no cash flow, targets are $60,000 / $20,000 / $20,000. A full rebalance suggests: Sell $10,000 of US Stocks and Buy $10,000 of Bonds.

Now imagine you plan to add $10,000 this month. New Total = $110,000, so targets become $66,000 / $22,000 / $22,000. In cash-only mode, you could buy $12,000 of Bonds and $2,000 of International Stocks with the new cash, getting you much closer to target without selling your US Stocks at all.

Best practices (practical, not theoretical)

• Pick a schedule: quarterly or yearly are common. Monthly is fine if you use tolerance bands.
• Use cash flow first: contributions and dividends are a “quiet” rebalancing engine.
• Watch taxes: taxable sells can create capital gains; retirement accounts are usually simpler.
• Keep the number of assets reasonable: more slices means more maintenance.
• Stick to a written plan: allocation is your risk dial — don’t change it every headline.

What this calculator does not include

This tool focuses on allocation math. It does not model trading fees, bid/ask spreads, minimum lot sizes, wash-sale rules, or account-specific restrictions. Think of the output as a clean “target map.” You can then apply it with judgment based on your brokerage and tax situation.

FAQs