Personal Finance
Portfolio Rebalancing: The Math Behind Staying on Track
How automatic rebalancing keeps your investments aligned with your goals—and why most people get it wrong.
The Problem
You set a target allocation: 60% stocks, 40% bonds. A year later, stocks have grown to 75% of your portfolio. You’re now taking more risk than intended.
Most people either:
- Never rebalance (drift into risky territory)
- Rebalance too often (trigger taxes and fees)
- Do the math wrong (sell the wrong amounts)
The Insight
Rebalancing is simple math, but humans are bad at it:
Amount to Sell/Buy = Current Value - (Total Portfolio × Target %)For a $100,000 portfolio:
- Stocks: $75,000 (75%) → Target: $60,000 (60%)
- Sell $15,000 of stocks, buy $15,000 of bonds
The challenge isn’t the formula—it’s actually doing it.
When to Rebalance
Three approaches:
- Calendar-based: Every quarter or year
- Threshold-based: When allocation drifts 5%+ from target
- Hybrid: Check quarterly, act only if drift exceeds threshold
Practical Takeaway
Automate what you can. Use tools that calculate rebalancing for you and remind you when action is needed.
The best rebalancing strategy: One you’ll actually follow.
This is why I’m building Rebalio—to make this math invisible and the action obvious.