What is Portfolio Rebalancing?
Portfolio Rebalancing is the process to reallocate the investments to the target allocation to better reflect the investor's own risk tolerance. Since, over time, the asset prices keep changing which in turn can make the allocation changes. This makes the allocation deviate from the investor’s preferred allocation. Sometimes investor’s needs can change too which makes the former allocation not reflecting investor’s risk tolerance any more. In these cases, portfolio rebalancing can help make the portfolio allocation better for the investor.
How can you rebalance your portfolio?
Rebalancing a portfolio can involve multiple buys and sells of the investments to match the target allocation set to meet investor’s financial needs. This means readjusting portfolio weights by selling the overweight investments and investing in the underweight ones.
On the other hand, you can also make an additional contribution and allocate the amount to rebalance the portfolio weights too. For example, investors may receive a paycheck monthly and decide to contribute a portion of it to the stock portfolio. In this case, you can adjust the portfolio by investing in the underweight assets without selling the overweight ones.
This portfolio rebalancing calculator aims to help you calculate how much should be reallocated and display the allocation before and after you made the rebalancing. We hope that you will find this helpful.
How to use this Portfolio Rebalancing Calculator?
To use this calculator, you have to input 3 main parameters:
1. Asset Name
This is the name of the investment you have or intended to invest in. It can be stock names, asset classes or any other kind of investments.
2. Current Value
This is the amount you have already had in the portfolio in monetary terms.
3. Target Allocation
This is the percentage of allocation that you think reflects your financial goals. The sum of all target allocation must be equal to 100%.
After inputting all the data, the chart will display your current and target allocations, and the table will show you how much you have now and how much has to be allocated.
Example cases to use this calculator
1. Rebalancing your investments with additional contributions
First, you can input all current positions and their current values into the calculator. Next is inputting Cash as an asset name and the contribution amount in the current value field. Finally, inputting all positions the target allocation you aim for and see the results.
2. Rebalancing your investments without additional contributions
First, you can input all current positions and their current values into the calculator. Next is inputting all additional investments which you have not invested in yet with the current value of zero. Finally, inputting all positions the target allocation you aim for and see the results.