Portfolio Management
Portfolio Rebalancing: When, How, and Why It Adds 0.3–0.5%/Year
Rebalancing isn't about "buying low, selling high." It's about risk control. The return bonus is a side effect.
What Drift Does to Risk
| Portfolio | Target | After 5 Years (No Rebalance) | Risk Change |
|---|---|---|---|
| 60/40 Stocks/Bonds | 60/40 | 72/28 | +40% equity risk |
| 80/20 | 80/20 | 88/12 | +35% equity risk |
Your "conservative" portfolio becomes aggressive automatically.
Rebalancing Methods Compared
| Method | Trigger | Trades/Year | Tax Drag | Effort |
|---|---|---|---|---|
| Calendar | Every 6/12 months | 2–4 | Medium | Low |
| Threshold (5% bands) | When drift >5% | 1–3 | Low | Medium |
| Cash-flow | New contributions to underweight | 0 extra | Lowest | Lowest |
| Hybrid | Threshold + annual review | 1–2 | Low | Low |
Best for most: Threshold (5%) + direct new money to underweight assets.
The 0.3–0.5% "Rebalancing Bonus"
Only appears in volatile, uncorrelated assets (stocks + bonds + REITs + commodities).
- In a 100% stock portfolio? Zero bonus.
- In 60/40? ~0.35%/yr historically.
Tax-Aware Rebalancing Rules
- Tax-advantaged accounts first (IRA, 401k, ISA) — no capital gains
- New cash → underweight assets — no selling
- Only sell in taxable if drift >10% — harvest losses simultaneously
- Never rebalance monthly — fees + short-term gains kill the bonus
See your drift
Visualize current vs. target with exact trade amounts
Our Portfolio Analyzer shows current vs. target weights, exact euro amounts to buy/sell, and Sharpe ratio. Free to view; Premium saves scenarios.
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