Rebalancing is the discipline of selling parts of your portfolio that have grown beyond their target allocation and adding to parts that have fallen below. The mechanical effect is to sell high and buy low — taking profits from over-performing asset classes and adding to under-performing ones at depressed prices. Over decades this rebalancing premium typically adds 0.3-0.7% per year to a multi-asset portfolio's total return, on top of keeping your risk profile aligned with your target.

Three common approaches: calendar (rebalance every 6 or 12 months regardless of drift); threshold (only rebalance when an allocation drifts more than 5% from target); hybrid (annual check, only act if past threshold). Threshold rebalancing is generally the most cost-efficient — fewer transactions, less brokerage, less CGT realisation. Modern thinking favours threshold over calendar for taxable accounts.

The cheap way to rebalance is via new contributions: instead of selling the over-weight asset (which crystallises CGT), direct your next contributions into the under-weight asset. For accumulators with regular contributions this often eliminates the need for any rebalancing trades. For retirees in drawdown phase, sell from the over-weight asset for the next withdrawal — also tax-efficient. The calculator above does the basic dollar-arithmetic. For a more strategic view of allocation see our Asset Allocation Calculator.