Stock Portfolio Rebalance Calculator

Rebalancing forces you to sell what just outperformed and buy what just underperformed, which is the mechanical opposite of how investors usually behave under emotional pressure. A 60/40 stock-bond portfolio left untouched for a decade can quietly drift to 80/20 after a long bull run, exposing you to far more equity risk than you originally signed up for. Resetting back to target keeps risk on your chosen level and automates buy-low, sell-high without requiring any prediction about where markets go next.

The 5% threshold is the band Charles Schwab and most major brokerages publish as a sensible default: only act when any holding is more than 5 percentage points off its target. Below that, the trading costs, bid-ask spreads, and (for taxable accounts) potential capital gains usually swamp the benefit of restoring the exact target. Tighten the band to 3% if you trade for free in a tax-advantaged account, or loosen it to 7 to 10% in a small taxable account where every sell triggers gains.

Direct new contributions (paychecks, dividends, RSU sales, year-end bonuses) into whichever holdings are most underweight, instead of selling overweight positions. This calculator's buy-only mode does exactly that: it skips every sell and spreads the new cash across the underweight holdings, proportional to their dollar shortfall. In a 401(k), IRA, or HSA you can rebalance freely with no tax cost. In a taxable brokerage account, buy-only plus an annual review usually keeps drift inside the band without realizing gains.

Vanguard's long-running rebalancing research finds that both annual and threshold-based rebalancing produce similar risk-adjusted returns over multi-decade periods, and both meaningfully beat never rebalancing. Annual is simpler (pick a date, do it, done) and minimizes trades. Threshold-based responds faster in volatile markets but requires you to actually check. A practical hybrid is to review once a year and only trade if any holding is outside the 5% band, which is the rule this calculator applies.

The honest answer is that rebalancing improves risk-adjusted returns, not raw returns. Over long stretches dominated by equities (like the post-2009 bull market), an un-rebalanced portfolio that drifts more equity-heavy will out-earn a disciplined 60/40. But across full cycles that include drawdowns of 30 to 50%, rebalanced portfolios consistently show a smaller worst-year loss, higher Sharpe ratio, and a smoother glide path, which is what lets most investors actually stay invested through the bad years instead of selling at the bottom.