Asset Allocation & Rebalancing Calculator

• Shows each asset class's drift in percentage points and checks it against an editable 5-point and 25% relative band.
• Puts new money into the classes below target first, then tells you how much to sell and buy to finish the job.
• Flags the tax cost of selling in a taxable account, with a rough estimate from the gain share and rate you enter.
• Shows the expected return and volatility of your current and target mix from editable assumptions (not forecasts), plus the 110-minus-age rule of thumb labelled as a heuristic.

How to use this calculator

List each asset class you hold, choose its type (US stocks, international stocks, bonds, cash or other), enter what it is worth today, and enter the share of the portfolio you want it to be. The targets must add up to 100%. Add any new money you plan to invest, and say whether the account is taxable or tax-advantaged such as an IRA or 401(k).

The calculator then shows a drift table, the dollars to buy and sell, and a chart of your mix against your target. Open Advanced to change the rebalancing bands, to enter your age for the rule-of-thumb comparison, to adjust the tax inputs, and to edit the return and volatility assumptions behind the risk figures.

If you hold several funds in the same class, add a row for each. For a first pass, group them: one row for all your US stock funds, one for bonds, and so on.

Why portfolios drift, and why it matters

Different assets grow at different speeds, so a portfolio that starts at a chosen mix does not stay there. Stocks that do well grow to be a larger share, and bonds that lag shrink. Left alone for years, a balanced portfolio can turn into a much more aggressive one without you making any decision. You then carry more risk than you chose, usually at the point in the cycle when markets have already risen a lot.

Rebalancing means trading back toward your target mix. It does not aim to increase returns. Its job is to keep risk at the level you picked. Vanguard's research on the subject concluded that there is no single optimal rebalancing frequency or threshold, and that for most broadly diversified portfolios, checking once or twice a year and rebalancing when an asset class has moved around five percentage points from target balances risk control against trading costs.

The 5/25 band rule

A band rule says: leave the portfolio alone unless an asset class has moved far enough from its target to matter. One popular version, attributed to Larry Swedroe, is the 5/25 rule. Rebalance when an asset class is more than 5 percentage points away from its target, or more than 25% of its own target away from it, whichever limit is smaller.

The absolute limit protects large holdings. The relative limit protects small ones. A 60% target has a 25% band of 15 points, so the 5-point limit applies. A 4% target has a 25% band of only 1 point, so a drift from 4% to 2.9% counts even though it is a small number of points. Both limits are editable here. In the default example, US stocks are 12 percentage points over target (62% against 50%) and outside the band, and so are international stocks and bonds, which are each about 6 percentage points short. Cash, exactly on target, is within its band. Widening the bands to 10 points and 50% leaves only 1 of 4 classes outside a band.

There is no perfect number. Narrow bands keep you close to target and cost more in trading and taxes. Wide bands trade less and tolerate more drift. The point of having bands is to decide in advance, so you are not choosing in the middle of a market scare.

How the trades are worked out

Total after new money = current total + new money
Target dollars        = total after new money x target %
Gap                   = target dollars - current dollars
New money             = spread over classes below target, in proportion to their gaps
Remaining gap         = sell classes above target, buy the rest

Using new money first is the cheapest way to rebalance, because buying does not create a tax bill. Vanguard's research found that directing contributions, dividends and interest to the most underweight asset class can keep a portfolio near its target with little or no selling. The gaps below target always add up to at least as much as the new money, so none of it is left over.

If the new money is not enough, the rest has to come from selling classes above target. The table shows both parts: what to buy with new money, and what to buy or sell after that.

A worked example

Suppose a portfolio of $100,000 holds $62,000 in US stocks (62%), $14,000 in international stocks (14%), $19,000 in bonds (19%) and $5,000 in cash (5%). The target is 50% US stocks, 20% international, 25% bonds and 5% cash, and $5,000 of new money is going in.

After the deposit the total is $105,000, so the target dollars are $52,500, $21,000, $26,250 and $5,250. US stocks are $9,500 too high. International stocks are $7,000 short, bonds $7,250 short and cash $250 short. The $5,000 of new money goes to the three classes below target in proportion to their gaps, so international stocks get $2,414, bonds $2,500 and cash $86. That leaves $9,500 to sell from US stocks and spend on the same three classes. With no new money at all, the sale would be $12,000; with $20,000 of new money it falls to $2,000.

Using the new money only and selling nothing leaves the largest drift at 9.0 percentage points instead of 12.0. That might be good enough if you are in a taxable account and want to avoid selling.

Taxes when you rebalance

In an IRA, 401(k) or similar account, trading to rebalance generally has no tax cost, so there is little reason to avoid it. In a taxable account, selling an investment that has gained value creates a capital gain. The IRS treats gains on assets held more than one year as long-term, taxed at lower rates, and gains on assets held a year or less as ordinary income. Federal long-term rates are 0%, 15% or 20% depending on taxable income, and higher-income investors may also owe the net investment income tax. State tax may apply on top.

In the default example, selling $9,500 in a taxable account with 40% of the proceeds as gain and a 15% rate gives a rough tax of $570. In an IRA the same trades cost $0. Your real figure depends on the cost basis of the lots you sell, so treat this as an order of magnitude and check your brokerage account's gain and loss report.

Ways to cut the tax cost include rebalancing with new money and dividends, doing the selling in tax-advantaged accounts, choosing the lots with the highest cost basis, and accepting wider bands in taxable accounts. If you sell something at a loss and buy the same or a substantially identical investment within 30 days before or after, the wash-sale rule can disallow the loss.

Expected return and risk of the mix

The calculator estimates the expected return and volatility of both your current mix and your target using editable assumptions. By default US and international stocks are assumed at 7%, bonds at 4%, cash at 3% and other assets at 5.5%, with volatilities of 16%, 18%, 6%, 1% and 14%, and a fixed set of simple round-number correlations. For the target mix that gives an expected return of 6.05% and a volatility of 11.47%; for today's drifted mix the return is 6.23%.

These numbers are assumptions, not forecasts. They exist to show how mixing assets changes risk: holding more stocks raises the expected return and the volatility together, and combining assets that do not move in lockstep gives a portfolio volatility lower than the average of its parts. Actual returns will differ, sometimes a lot. Use the Advanced fields to test pessimistic and optimistic assumptions rather than relying on the defaults.

The 110-minus-age rule of thumb

A familiar shortcut suggests holding a stock percentage equal to 110 minus your age, with the rest in bonds and cash. Older versions used 100 minus age, and more aggressive versions use 120. At age 40, 110 minus 40 suggests 70% in stocks; at age 60, it suggests 50%. The calculator compares that figure with your target: in the default case your target stocks are 70%, equal to the rule.

It is a heuristic, which means a rough guide and nothing more. It ignores your goals, your other income, a pension, how long you expect to live, and how you would respond to a 30% fall. Two people of the same age can reasonably hold very different mixes. Target-date funds and a planner can fit your circumstances better than any single formula.

Choosing a target mix

This calculator takes your target as given. It does not pick one for you, and no calculator can, because the right mix depends on facts about you. The main ones are the length of time before you need the money, how much loss you could tolerate without selling, how stable your income is, and how much you need the portfolio to grow. A person who will need the money in three years has little reason to hold much in stocks. A person with decades to go and a steady salary can usually hold more.

Many people separate ability to take risk from willingness. Ability is about your finances: time horizon, other income, emergency savings. Willingness is about your temperament: whether you would stick with the plan during a 30% fall. The safer choice is the smaller of the two. A mix that is mathematically fine but that you would abandon in a crash does worse in practice than a more modest mix you hold.

A target-date fund is one way to avoid choosing: it holds a mix that moves toward bonds as the target year nears and rebalances automatically. If you hold one, you do not need to rebalance within it.

Rebalancing step by step

A simple routine keeps rebalancing from becoming a chore. Pick a date once or twice a year, perhaps when you check your taxes or renew your insurance. Add up the value of every account, including old workplace plans. Group the holdings into your asset classes. Enter them here with your targets and the new money you plan to add.

If no class is outside its band, you can stop, and many years will end this way. If one is, begin with new money. Then, where selling is needed, do it first in tax-advantaged accounts. Use the tax estimate to decide whether to sell in a taxable account or to accept some leftover drift. Place the trades, and write down the date and the result so next time you can see what changed.

Assumptions and limitations

• Asset classes only. The tool works at the level of broad classes. It does not look inside funds, sectors or individual stocks.
• Round-number assumptions. Expected returns, volatilities and correlations are illustrations you can edit. They are not estimates from data and not forecasts.
• Tax is an estimate. It uses a gain share and rate that you enter. It does not know your cost basis or other income.
• No trading costs. Commissions, bid-ask spreads and fund redemption fees are not included.
• Contributions only. Withdrawals can also be used to rebalance, but are not modelled.
• Rule of thumb. The 110-minus-age figure is a heuristic, not a recommendation.
• Not advice. A planner or tax professional can adapt this to your accounts and goals.

Common mistakes

Rebalancing too often. Frequent trading adds costs and taxes without much improvement in risk control.

Looking at one account. Your target applies to the whole household portfolio. Rebalance across your IRA, 401(k) and taxable accounts together, and do the selling where it costs least in tax.

Ignoring the tax bill. A sale in a taxable account can cost more than the benefit of getting back to target.

Counting your house or your company stock as diversified. Concentrated holdings change your real risk.

Never rebalancing. After a long bull market the portfolio can be far riskier than planned.

Treating the age rule as a plan. It is a starting point to question, not an answer.

Frequently asked questions