Step 4 of 5 — Rebalance your portfolio
Calculate exact trades needed to rebalance your portfolio to target allocation.
| Asset | Current $ | Target % |
|---|---|---|
Max drift: 6.7%
| US Stocks | SELL $6,000 |
| International | BUY $3,000 |
| Bonds | BUY $3,500 |
| Cash | SELL $500 |
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Next Step: Roth vs. Traditional IRA
Target Value = Total × Target %
Trade = Target Value − Current Value (positive=buy, negative=sell)
Most experts recommend annually or when any asset class drifts 5%+ from target. Avoid rebalancing too frequently — transaction costs and taxes add up.
Drift occurs when one asset grows faster, changing your allocation. A 60/40 portfolio can become 70/30 in a bull market — increasing risk beyond your comfort level.
In retirement accounts: sell overweighted assets, buy underweighted. In taxable accounts: buy with new contributions (tax-free). Avoid selling to minimize capital gains.
Classic: 60% stocks / 40% bonds. Aggressive: 80/20. Conservative: 40/60. Adjust based on age, risk tolerance, time horizon. Review allocation every 5 years.
During rebalancing, sell underperforming assets at a loss to offset gains elsewhere. Then repurchase similar (not identical) fund to avoid wash sale rule.
Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.