Portfolio Rebalancing Impact Calculator

Portfolio Rebalancing Impact – From Drift To Trades

This Portfolio Rebalancing Impact Calculator helps you understand how far your current portfolio has drifted from its target allocation and what trades are needed to get back on track. Instead of doing allocations and trade amounts by hand, the tool converts your holdings and target percentages into a clear trade list with turnover and cost estimates.

Rebalancing is about keeping your risk and return profile consistent over time. As markets move, some assets grow faster than others, causing your portfolio weights to drift away from your plan. Rebalancing reverses that drift by selling overweight positions and buying underweight positions.

Core Rebalancing Formulas

The calculator is built on a few straightforward formulas. Let V be the total portfolio value and let each asset i have current value v_i and target allocation t_i in percent. The total portfolio value is:

The current allocation percentage for each asset is:

The target value for each asset, based on its target allocation, is:

The suggested trade amount needed to move from the current value to the target value is:

A positive trade amount indicates a buy, while a negative trade amount indicates a sell. Allocation drift for each asset is defined as the difference between its current and target allocations:

The calculator also reports the maximum absolute drift across all assets to highlight the largest deviation from your plan.

Turnover And Transaction Cost Formulas

Rebalancing trades generate turnover: the total value of assets bought and sold. A simple way to approximate turnover is to sum the absolute values of the trade amounts:

To estimate transaction costs, the calculator uses a user-specified cost rate c expressed as a percentage. The estimated cost is:

This approach is flexible. You can set c to an all-in estimate that reflects commissions, bid–ask spreads or other trading frictions. The tool also breaks out total amounts to buy and sell separately, defined as:

How To Use The Portfolio Rebalancing Impact Calculator

• Enter an estimated transaction cost percentage (or leave it at zero if you only care about allocations).
• In the table, enter an asset name, its current market value and the target allocation percentage.
• Add or remove rows until your entire portfolio is represented.
• Ensure that your target allocation percentages sum to 100%.
• Click the calculate button to see allocation drift, suggested trades, turnover and estimated costs.

The calculator then computes the total portfolio value, current allocation for each asset, target values and trade amounts. It converts the results into a trade list that shows how much to buy or sell in each holding and in which direction.

Understanding Allocation Drift

Allocation drift is the difference between where your portfolio is now and where you want it to be. For each asset, drift is computed as:

Positive drift means the asset is overweight relative to the target, while negative drift means it is underweight. The calculator reports the largest absolute drift:

This single number gives you a quick sense of how far, overall, your portfolio has moved away from its intended mix. Some investors rebalance only when max drift exceeds a threshold, such as 5 percentage points.

Interpreting Buy And Sell Recommendations

The trade amounts produced by the calculator are idealized suggestions based on your inputs. For each asset, the tool shows:

• Current value and allocation percentage.
• Target allocation and the implied target value.
• Trade amount (positive for buy, negative for sell).
• Drift before rebalancing.

In practice, you may round trade amounts, respect minimum trade sizes or take into account tax considerations before executing trades exactly as shown. The calculator is an allocation guide, not an execution system.

Balancing Costs And Tracking Error

Rebalancing reduces tracking error, the difference between your actual and target allocation, but it also incurs costs. The turnover and cost estimates produced by the calculator help you weigh the trade-off between staying close to your target mix and minimizing trading expenses.

A portfolio that is only slightly off target may not justify an aggressive rebalance if estimated costs are high. Conversely, large drifts combined with modest costs may argue for more frequent or deeper rebalancing.

Practical Tips For Rebalancing

• Consider using new contributions or withdrawals to move toward your target allocation before placing separate buy and sell orders.
• Use the tool to compare different target weights and see how much trading each option would require.
• Review rebalancing opportunities on a regular schedule, such as quarterly or annually, and also after large market moves.
• Always check how taxes and account-specific rules may affect the real cost and feasibility of rebalancing transactions.