How to Rebalance Your Portfolio (and How Often)
Why Bother
Worth being straight about this first, because a lot of writing on rebalancing oversells it.
Rebalancing is risk control, not a return booster. The story that it mechanically "sells high and buys low" and therefore raises returns does not survive contact with the evidence. Over long stretches where equities beat bonds, rebalancing into bonds lowered returns, exactly as you would expect. What it reliably does is stop the portfolio from quietly becoming something riskier than you agreed to.
A 60/40 left alone for a decade of strong equity markets does not stay 60/40. It becomes 80/20, and you find out how that feels in the next downturn rather than in the planning stage.
The Three Schedules
Calendar
Pick a date, check once or twice a year, correct whatever has moved. Simple, requires no monitoring, and its weakness is that it acts on drift that does not need acting on and misses drift that arrives between checks.
Threshold
Ignore the calendar and act when a slice moves more than a set band from target. Five percentage points is the common band. Vanguard's research concluded that annual or semiannual monitoring with a 5% threshold works well for most broadly diversified portfolios (Vanguard, rebalancing research summarised by Fidelity and others).
The strength is that it responds to what actually happened. The weakness is that it needs you to be looking.
Hybrid
Check on a schedule, act only if the band is breached. You get the discipline of a fixed date and the restraint of a threshold, and you skip the trades in the years when nothing much moved. This is what most practitioner guidance converges on.
Rebalancing With New Money
This is the route most articles skip, and for anyone still contributing it is usually the better one.
Instead of selling what grew, point your next contributions at what lagged. No sale means no realized gain, no tax event, and no cost beyond whatever you already pay to buy.
A Worked Example
You hold EUR 100,000, target 60/40, currently sitting at 68/32:
Equities: EUR 68,000 (68%)
Bonds: EUR 32,000 (32%)You are 8 percentage points overweight equities. You contribute EUR 2,500 a month and you direct all of it to bonds.
How much new money closes the gap entirely? Equities stay at EUR 68,000, and you need that to be 60% of the total:
68,000 / 0.60 = EUR 113,333 total
113,333 - 100,000 = EUR 13,333 of new moneyCheck it: bonds become 32,000 + 13,333 = EUR 45,333, which is 40% of 113,333. Correct.
At EUR 2,500 a month that takes a little over five months. Partway through, after three contributions:
Equities: 68,000 / 107,500 = 63.3%
Drift: +3.3 points, down from +8What Selling Actually Costs
Take the same portfolio and correct it immediately instead. You sell EUR 8,000 of equities and buy EUR 8,000 of bonds.
Assume a 0.1% spread, EUR 5 commission per trade, and a cost basis of EUR 5,000 on the shares you sell, so the sale realizes a EUR 3,000 gain. At an illustrative 20% rate (your actual rate depends entirely on where you are tax resident):
| Cost | Amount |
|---|---|
| Spread on EUR 8,000 | EUR 8 |
| Commission, two trades | EUR 10 |
| Tax on a EUR 3,000 realized gain at an illustrative 20% | EUR 600 |
| Total | EUR 618 |
The tax is 97% of the cost. This is the whole reason the new-money route is worth knowing: the trading fees are trivial and the realized gain is not.
It also shows where the calculation flips. In a tax-sheltered account there is no gain to realize, so selling costs EUR 18 and the argument for waiting five months mostly evaporates.
The Order Worth Following
Common practice, rather than a rule, and it follows from the arithmetic above:
Measure the gap before deciding anything. A 2 point deviation usually is not worth a trade.
Direct new contributions first. Free, no tax event, and it uses money that was going in anyway.
Then rebalance inside tax-sheltered accounts. Selling there costs the spread and commission and nothing else.
Sell in taxable accounts last, because that is the only step that creates a tax bill.
Check whether you have losses worth realizing at the same time, since you are already trading. See tax-loss harvesting.
How Turbobulls Helps
You can set a target weight on a holding, and Turbobulls shows the drift between that target and the holding's current weight, in percentage points. Anything under 0.5 points is treated as noise and not printed; past 1.5 points a holding is flagged amber, deliberately not red, since being off target between rebalances is normal.
For the cost side of the decision, cost basis is tracked per lot, so you can see what a particular purchase cost rather than a blended average across every share you own. That is the number that decides how large a gain a sale would realize. Realized and unrealized gains are separated too, though the per-holding split of the two sits on the paid plan rather than the free one.
Allocation breakdowns by asset type, broker, currency and tag are on every plan, which is what lets you see the shape of the portfolio across brokers rather than one account at a time. Breakdowns by sector, industry, country and region are on the paid plan.
See the Gap and What Closing It Would Cost
The Full Picture: Read These Next
Frequently Asked Questions
Q: How often is best?
Once or twice a year is enough for most portfolios, and checking more often mainly produces trades you did not need. The research consensus lands on annual or semiannual monitoring with a band of around 5 percentage points, acting only when the band is breached.Q: Does rebalancing improve returns?
Not reliably. It controls risk. In periods when the higher-returning asset keeps winning, rebalancing away from it reduces your return, which is the cost of keeping the risk level you chose. Anyone selling rebalancing as a return strategy is overstating it.Q: Should I rebalance during a crash?
A crash is when a threshold rule fires hardest, because that is when allocations move most. It is also when buying the fallen asset is most uncomfortable. Deciding your schedule in advance exists precisely so this question gets answered before you are in the middle of it, rather than during.Q: What about tax?
Selling in a taxable account realizes a gain, and as the worked example shows, that is usually the dominant cost of rebalancing. Treatment varies by country, so see capital gains basics for how disposals work, and check your own rules or ask an accountant.Turbobulls is a tracking and analytics tool, not an investment adviser. Nothing here is investment, tax, or legal advice. Investing involves risk, including loss of principal. Do your own research or consult a licensed professional.
Rebalance on Real Numbers
Turbobulls shows what has drifted, by how much, and what each lot cost, so a rebalancing decision starts from your actual position rather than an estimate.
- Target weight per holding with drift in percentage points
- Cost basis per lot, so you know what a sale would realize
- Allocation by asset type, broker, currency and tag on every plan
- Realized and unrealized gains separated, per holding on the paid plan
- Multi-broker and multi-currency handled natively
Get these by email
One useful investing metric, properly explained. Unsubscribe in one click.
Read more
Dividend Withholding Tax Explained
Why your dividend arrives smaller than announced, which part of the tax you can actually reduce, and which part is buried inside your funds.
Import Interactive Brokers into Turbobulls
Export a Flex Query or Activity Statement from Interactive Brokers and import it in a couple of minutes. What gets brought across, and what does not.
Import XTB into Turbobulls
Export your XTB account history from xStation and import the workbook directly. What comes across, the ZIP and re-save quirks, and what gets skipped.