Markets drift. A 60/40 portfolio left alone for a decade can end up 80/20. Rebalancing brings you back to your target — quietly enforcing a buy-low, sell-high discipline.
Why Rebalance at All
If you set a 60/40 mix because that's the risk you can tolerate, drifting to 80/20 means you have implicitly taken on more risk than you signed up for. The next drawdown will hit harder than you planned.
Calendar vs Threshold
Two common approaches:
- Calendar: Rebalance once a year (e.g., every January).
- Threshold: Rebalance whenever an asset class drifts more than ±5 percentage points from target.
Studies show both work; pick whichever you'll actually do. Annual is simpler and good enough.
How to Do It
Add up your total portfolio. Multiply by each target percentage. Compare to current value of each asset. Buy or sell the difference. Our Portfolio Rebalancing Calculator does this in seconds.
The Tax Trap
In a taxable account, selling appreciated assets triggers capital gains tax. Three ways to minimize:
- Direct new contributions to underweight assets instead of selling overweight ones.
- Do all rebalancing inside tax-advantaged accounts (IRA, 401(k)).
- Tax-loss harvest when assets are below basis.
How Often Is Too Often
Rebalancing too frequently chews up gains in taxes and friction. Once a year is plenty. Never within a 30-day wash-sale window of a recent loss.
Bottom Line
Pick a target allocation. Rebalance once a year by funneling new contributions toward whichever asset has lagged. The discipline matters more than the precise mix.
Run the numbers yourself
Plug your own inputs into our free calculators — no signup.