Portfolio rebalancing calculator

There are two common approaches. Calendar rebalancing means checking once or twice a year — say every January — and trading back to target. Threshold (or band) rebalancing means you only act when an asset drifts more than a set amount, often 5 percentage points, from its target. Research suggests checking annually and rebalancing only when bands are breached captures most of the benefit while keeping trades and taxes low. Rebalancing more often rarely helps and usually just adds cost.

Rebalancing is selling some of what has grown and buying more of what has lagged, to return your portfolio to its chosen mix of stocks, bonds and cash. Over time, winners grow to take up a bigger share than you intended — so a 60/40 portfolio can quietly become 70/30 after a strong stock run, carrying more risk than you signed up for. Rebalancing is a disciplined "sell high, buy low" that resets that risk back to your plan.

Whenever you can, rebalance with new money. Directing fresh contributions (or, in retirement, your withdrawals) toward the underweight assets nudges you back to target without selling anything — which avoids triggering capital gains in a non-registered account. This calculator's "new cash only" mode shows exactly where to point that money. You only need to sell when the drift is too large for contributions to fix, or when you have no new money to add.

It's a popular threshold rule from author Larry Swedroe. Rebalance an asset class when it drifts by more than 5 percentage points in absolute terms (e.g. a 30% target hits 35% or 25%), or by more than 25% of its own weight for smaller positions (a 4% holding that moves past 5% or below 3%). The "or" catches both big core holdings and small satellite ones. The verdict above uses a simple 5-point band as its main trigger.

Its main job is controlling risk, not boosting returns. By trimming what has run up and topping up what has fallen, rebalancing keeps your portfolio from drifting into a riskier mix than you intended. It can add a small "rebalancing bonus" when assets are volatile and mean-reverting, but in a long bull market it can slightly lower returns versus letting stocks ride. Think of it as keeping your seatbelt on, not stepping on the gas.

Do as much as you can inside registered accounts (RRSP, RRIF, TFSA, FHSA), where trades have no tax consequence. In a non-registered account, prefer rebalancing with new contributions and dividends rather than selling, harvest losses to offset gains where available, and remember that selling winners realizes capital gains. Spreading a large rebalance across two tax years can also keep you out of a higher bracket.

Start with your registered accounts, because you can buy and sell there freely with no tax bill. If your stocks are overweight, sell some in the RRSP or TFSA rather than the non-registered account. This is part of asset location — holding the right assets in the right account type. Often you can fix the whole portfolio's mix using trades inside registered accounts alone, leaving the taxable holdings untouched.

Drift is the gap between an asset's current weight and its target weight. Because different assets grow at different rates, your mix wanders away from plan even if you never trade. A portfolio that started at 25% U.S. stocks might drift to 36% after a few strong years — that 11-point gap is drift, and it means you're now carrying more equity risk than you chose. The legend above shows each asset's drift at a glance.

A widely used answer is 5 percentage points for major asset classes. Smaller drifts usually aren't worth the trading cost and tax to correct; once an asset is more than about 5 points off, the risk change is meaningful enough to act. The right band depends on your costs and temperament — wider bands mean fewer trades but more drift between them. This tool flags "time to rebalance" once any asset crosses the 5-point line.

No — that's their main appeal. An asset-allocation ETF (like a single balanced or growth ETF) holds the whole stock/bond mix in one fund and rebalances internally for you, automatically and with no tax event inside the fund. If your portfolio is one of these funds, you never have to rebalance it yourself. This calculator is for investors holding several separate funds who manage the mix themselves.

No — it's an educational tool. It shows the trades that would return your entered holdings to your entered targets, but it doesn't know your tax situation, account types, or trading costs, and it doesn't recommend a target mix. Use it to plan the mechanics of a rebalance, then check the tax impact of any sales in a non-registered account. For a large or complex portfolio, a fee-for-service advisor can help you weigh the trade-offs.