Portfolio Rebalancing: When, Why, and How

By: Loot Lasso / Last Edited: 3/12/2025

Do I Need to Rebalance?

There are three main approaches to deciding when to rebalance your portfolio:

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1. Relative Variance (Loot Lasso’s Recommended Method)

This method triggers rebalancing when an asset’s allocation drifts a certain percentage relative to its target. Personally, I use a 10% relative threshold.

Example:
If your target allocation for U.S. stocks is 50%, a 10% variance means you’d rebalance if the actual allocation falls below 45% or rises above 55%.
For a smaller allocation—say 20% bonds—your rebalancing range would be between 18% and 22%.

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2. Specified Variance

This approach uses fixed thresholds based on asset size:

• Large allocations: Rebalance if >5% off target
• Moderate allocations: Trigger at 2–3% variance
• Small allocations: Trigger at 1–2% variance

While similar to the relative variance method, Loot Lasso does not recommend this approach—it lacks the precision and adaptability of a true relative variance system.

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3. Specified Date

With this method, rebalancing is done on a set schedule—annually (e.g., every December), semiannually, or quarterly. While it’s simple to follow, this approach may miss opportunities to correct imbalances as they arise.

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💡 Pro Tip:
If you’re still in the accumulation phase of investing (i.e., regularly contributing), you can often rebalance just by directing new contributions where they’re needed. This is one advantage of the relative variance method—it often requires fewer transactions and less effort.

Challenges of Rebalancing

While rebalancing might sound straightforward, there are a few common pitfalls to keep in mind:

• Know Your Goals & Risk Tolerance
  Without clearly defined objectives, it’s hard to know when or how to rebalance. [Learn more here.]
• Taxes
  Selling investments in taxable accounts (like a brokerage) can trigger capital gains taxes, which eat into your returns. The Loot Lasso Rebalancing Calculator helps minimize unnecessary sales in taxable accounts.
• Trading Costs
  Some brokerages still charge fees for trades. Avoid frequent small transactions that may not be cost-efficient.
• Account Types Matter
  The type of account (taxable vs. tax-advantaged) can impact your ideal asset location. Simply mirroring the same allocation across all accounts may not be optimal. [Learn more here.]

These factors add complexity—especially if you manage multiple accounts—making it hard to rebalance each account individually while keeping your total portfolio in alignment.

How Do I Rebalance My Portfolio?

Depending on your investment style, number of accounts, and personal goals, rebalancing can be either simple or complex. Here are some effective strategies:

 ✅ Use New Contributions

Direct new deposits or reinvested dividends to underweight areas. This keeps your portfolio balanced without selling—and minimizes tax consequences. The Loot Lasso Rebalancing Calculator can help allocate new funds efficiently.

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✅ Use All-in-One or Target-Date Funds

Many brokerages offer funds that maintain specific allocations automatically (e.g., target-date or balanced funds). These simplify rebalancing but may come with higher fees and less flexibility.

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✅ Schedule Periodic Check-Ins

Pick a time (e.g., annually or semiannually) to review your portfolio. During these check-ins, assess your current allocation, compare it to your desired targets, and rebalance if necessary.

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✅ Use a Robo-Advisor

Robo-advisors automatically manage your allocation, risk level, and tax strategy based on your profile. They’re more affordable than traditional advisors and take the guesswork out of rebalancing.

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✅ Work with a Financial Advisor

A financial advisor can offer personalized strategies, deeper insight into complex portfolios, and access to broader investment options than most robo platforms.

Final Thoughts

Rebalancing is a key tool in long-term investing. Whether you’re doing it manually, using software, or outsourcing it altogether, staying aligned with your goals helps keep risk in check and discipline in place—two essential ingredients for investment success. The Loot Lasso Portfolio Rebalancing Calculator makes it easy to manage yourself.