Portfolio rebalancing restores or moves a portfolio toward a chosen allocation after market movement or cash flows change its weights. A $100,000 60/40 stock-and-bond target can drift to $70,000 stocks and $30,000 bonds; restoring 60/40 means moving $10,000 of value toward bonds before taxes, transaction costs, and account rules.
What portfolio rebalancing means
Portfolio rebalancing is the process of bringing actual asset weights back toward a stated target allocation. Allocation sets the desired mix using goals and risk capacity; rebalancing compares actual weights with that mix after the market changes them.
| Target stocks | 60% / $60,000 |
|---|---|
| Target bonds | 40% / $40,000 |
| Actual stocks | 70% / $70,000 |
| Actual bonds | 30% / $30,000 |
| Illustrated shift | $10,000 |
Portfolio rebalancing: when an allocation drifts and what a rebalance does: worked example
Start with $60,000 in stocks and $40,000 in bonds. If stocks rise to $70,000 while bonds remain $30,000, the $100,000 portfolio is 70% stocks and 30% bonds. A 60% stock target is $60,000, so a $10,000 shift from the stock side to the bond side restores the stated mix. Directing new cash to bonds can instead reduce drift without a sale.
How to calculate portfolio rebalancing
Calculate each category's current value divided by total portfolio value, then multiply total value by the target weight. The difference is the amount to buy or sell in a simple model. Check account location, tax consequences, trading costs, minimums, and the written rebalancing rule before acting.
Use the relevant inputs with these related Calculatort pages: asset-allocation guide · investment-return calculator · retirement projection.
Read the numbers before making a decision
Target stocks check 1. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 1 when it examines target stocks at 60% / $60,000, target bonds at 40% / $40,000, and actual stocks at 70% / $70,000. Identify the unit for target stocks in pass 1 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 1, recording the changed target stocks makes the result traceable rather than a headline number.
Target bonds check 2. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 2 when it examines target bonds at 40% / $40,000, actual stocks at 70% / $70,000, and actual bonds at 30% / $30,000. Identify the unit for target bonds in pass 2 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 2, recording the changed target bonds makes the result traceable rather than a headline number.
Actual stocks check 3. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 3 when it examines actual stocks at 70% / $70,000, actual bonds at 30% / $30,000, and illustrated shift at $10,000. Identify the unit for actual stocks in pass 3 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 3, recording the changed actual stocks makes the result traceable rather than a headline number.
Actual bonds check 4. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 4 when it examines actual bonds at 30% / $30,000, illustrated shift at $10,000, and target stocks at 60% / $60,000. Identify the unit for actual bonds in pass 4 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 4, recording the changed actual bonds makes the result traceable rather than a headline number.
Illustrated shift check 5. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 5 when it examines illustrated shift at $10,000, target stocks at 60% / $60,000, and target bonds at 40% / $40,000. Identify the unit for illustrated shift in pass 5 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 5, recording the changed illustrated shift makes the result traceable rather than a headline number.
Target stocks check 6. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 6 when it examines target stocks at 60% / $60,000, target bonds at 40% / $40,000, and actual stocks at 70% / $70,000. Identify the unit for target stocks in pass 6 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 6, recording the changed target stocks makes the result traceable rather than a headline number.
Target bonds check 7. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 7 when it examines target bonds at 40% / $40,000, actual stocks at 70% / $70,000, and actual bonds at 30% / $30,000. Identify the unit for target bonds in pass 7 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 7, recording the changed target bonds makes the result traceable rather than a headline number.
Actual stocks check 8. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 8 when it examines actual stocks at 70% / $70,000, actual bonds at 30% / $30,000, and illustrated shift at $10,000. Identify the unit for actual stocks in pass 8 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 8, recording the changed actual stocks makes the result traceable rather than a headline number.
Actual bonds check 9. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 9 when it examines actual bonds at 30% / $30,000, illustrated shift at $10,000, and target stocks at 60% / $60,000. Identify the unit for actual bonds in pass 9 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 9, recording the changed actual bonds makes the result traceable rather than a headline number.
Illustrated shift check 10. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 10 when it examines illustrated shift at $10,000, target stocks at 60% / $60,000, and target bonds at 40% / $40,000. Identify the unit for illustrated shift in pass 10 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 10, recording the changed illustrated shift makes the result traceable rather than a headline number.
Target stocks check 11. A rebalancing ledger compares current weights with a stated target before naming a trade; a price move alone does not identify the desired action on pass 11 when it examines target stocks at 60% / $60,000, target bonds at 40% / $40,000, and actual stocks at 70% / $70,000. Identify the unit for target stocks in pass 11 before changing a number: dollars, shares, months, a percentage, or a tax category. In check 11, recording the changed target stocks makes the result traceable rather than a headline number.
Common mistakes
Do not rebalance from a headline percentage without totaling every account, confuse a rising dollar balance with a constant weight, trade automatically without a threshold or schedule, or ignore taxable gains.
Where this calculation stops
A target mix can be unsuitable, values move before execution, funds can have restrictions, and tax or transaction costs can exceed the benefit of a small adjustment.
Source and verification
Investor.gov defines rebalancing as realigning a portfolio's asset weights back to target allocations and notes that investors may use periodic or threshold approaches. Read the named source. For this illustration, verify the source date and the controlling record for target stocks before relying on the result.