Rebalancing Threshold Calculator
Most rebalancing advice answers the wrong question. It explains how to rebalance, which is arithmetic, and skips when, which is the part that determines whether the exercise is worth doing at all. The answer turns out to be surprising: portfolios drift far more slowly than people assume, because drift is driven by the gap between the two sides' returns rather than by their level, and that gap applies to a shrinking minority of the portfolio as time passes. A conventional growth and defensive split with a three and a half point return gap takes the better part of a decade to wander five points from its target. Against that, the standard advice to review annually has you trading roughly eight times more often than the portfolio actually requires. This page sets the two policies side by side. A threshold policy acts only when the allocation has moved past a band you choose; a calendar policy acts on a fixed date whether or not anything has happened. It reports how long each band takes to breach, how many rebalances a year each policy implies, the maximum drift each one accepts, and what the trading costs over a long horizon. It also flags the answer that beats both, which is that anyone still adding money can correct drift by directing contributions to whichever side has fallen behind, with no sale, no trading cost on that side and no realised gain. For a regular contributor that alone often keeps a portfolio inside a five point band indefinitely.
Time to breach a band solves that expression for the target weight plus the band, giving t = ln[ wⁱ(1−w) / (w(1−wⁱ)) ] / ln[(1+g)/(1+d)], where wⁱ is the target plus the band.
Rebalances a year = 1 / time to breach, since rebalancing returns the portfolio to target and the drift restarts.
Maximum drift under a calendar policy is the drift accumulated over one interval, because the portfolio is reset at the end of each one.
Trading cost = rebalances a year × trades per rebalance × cost per trade. Two trades per rebalance assumes one sale and one purchase.
Drift depends on the return gap, not the level. Two assets both returning 7% never drift apart at all, however volatile they are.
New Zealand tax. A genuine long-term investor is generally not taxed on the gain when selling shares, so rebalancing costs less here than in countries where every sale is a taxable event. Frequent trading can change that position.
Excluded: volatility and the jumps that cause most real band breaches, contributions and withdrawals, bid-ask spreads, and any difference in fees between the two sides.
Not financial advice. Last verified: August 2026.
The two policies side by side
| Return gap driving the drift | 3.50% |
| Time to drift 5 points past target | 7.6 years |
| Rebalances a year, threshold policy | 0.13 |
| Rebalances a year, annually | 1.00 |
| How much more often the calendar acts | 7.6x |
| Maximum drift, threshold policy | 5.00% |
| Maximum drift, calendar policy | 0.69% |
| Extra trading cost of the calendar over 30 years | $156.18 |
The calendar policy buys tighter control of the allocation. The threshold policy buys fewer decisions. Neither is free and neither is obviously right.
What each band implies
| Band | Time to breach | Rebalances a year | In 30 years | Trading cost |
|---|---|---|---|---|
| 1 point | 1.4 years | 0.69 | 20.7 | $124.49 |
| 2 points | 2.9 years | 0.34 | 10.3 | $61.61 |
| 3 points | 4.4 years | 0.23 | 6.8 | $40.63 |
| 5 points | 7.6 years | 0.13 | 4.0 | $23.82 |
| 10 points | 16.2 years | 0.06 | 1.9 | $11.11 |
Even a one point band, which is tighter than almost anyone runs, only triggers about every eighteen months.
What each calendar schedule buys
| Schedule | Rebalances a year | Maximum drift | Trading a year | Over 30 years |
|---|---|---|---|---|
| Monthly | 12.00 | 0.06% | $72.00 | $2,160.00 |
| Quarterly | 4.00 | 0.17% | $24.00 | $720.00 |
| Every six months | 2.00 | 0.35% | $12.00 | $360.00 |
| Annually | 1.00 | 0.69% | $6.00 | $180.00 |
Going from annual to monthly tightens drift by 0.63 percentage points and multiplies the trading by twelve. That is the trade in its plainest form.
Where the portfolio actually sits over time
| After | Growth weight | Drift | Growth value | Past your band? |
|---|---|---|---|---|
| 1 year | 70.69% | 0.69% | $70,693.72 | No |
| 2 years | 71.38% | 1.38% | $71,377.96 | No |
| 3 years | 72.05% | 2.05% | $72,052.55 | No |
| 5 years | 73.37% | 3.37% | $73,372.10 | No |
| 7.6 years | 75.00% | 5.00% | $75,000.00 | Yes, rebalance |
| 10 years | 76.49% | 6.49% | $76,492.44 | Yes, overdue |
Percentages are of the portfolio at that date. Dollar figures are shown at the starting value so the drift is visible without the growth obscuring it.
Portfolios Drift Slowly
The instinct is that a portfolio wanders away from its target quickly and needs regular correction. On any reasonable set of return assumptions it does not.
On the worked example a 70/30 split takes 7.6 years to reach 75/25. After a full year it has moved 0.69 of a percentage point, which is a rounding error rather than a risk.
The reason is that drift depends on the gap between the two returns, not their size, and that gap applies to a shrinking minority of the portfolio. Two assets both returning 7.00% never drift apart at all, however violently they move in the meantime.
Worked Example: 70/30 With A 3.5 Point Gap
Growth at 7.00%, defensive at 3.50%, a gap of 3.50 percentage points.
A five point band breaches after 7.6 years, which is 0.13 rebalances a year, or four in thirty years.
An annual calendar review is 1.00 a year, 7.6x as often. It costs $180.00 of trading over thirty years against $23.82, and holds maximum drift to 0.69 points instead of 5.00.
Neither Policy Is Obviously Right
A threshold policy trades when something has happened. A calendar policy trades when the date arrives. Each buys something.
The calendar buys precision. The allocation stays within a fraction of a point of target permanently, and the decision requires no monitoring, just a diary entry.
The threshold buys fewer decisions. Four rebalances in thirty years instead of thirty, at a seventh of the cost, in exchange for letting the allocation range five points either side.
What matters is whether five points of drift is a risk you care about. On a 70/30 portfolio, drifting to 75/25 changes the expected return and volatility by a small amount. If your answer is that it does not much matter, the threshold policy is doing less work for a reason.
The Option That Beats Both
If you are still adding money, direct contributions to whichever side has fallen behind. No sale, no trading cost on the sale side, and no realised gain.
For a regular contributor this is often enough on its own. A portfolio drifting 0.69 points a year needs very little redirection to stay on target, and a KiwiSaver member changing their fund split does it with no trade at all.
Our portfolio rebalance calculator works out the amounts, and our one fund vs multi-fund calculator prices the time this whole exercise takes against holding a single fund that rebalances itself.
Where This Model Understates The Case
Steady returns are the wrong shape. Markets move in jumps, and a sharp fall can push a portfolio past a band in weeks rather than years.
That is when rebalancing earns its keep, because it forces you to buy the side that has fallen at precisely the moment it is hardest to do. A threshold policy handles this well: it triggers on the event rather than waiting for a date months away.
So read the time to breach as the pace of drift in ordinary conditions rather than as a schedule. In a calm decade the portfolio genuinely does need almost nothing done to it. In a volatile one, the band will tell you when it does.
Rebalancing Is Cheaper Here Than Overseas
Most rebalancing guidance is written for jurisdictions where selling an asset realises a taxable gain, which makes every rebalance expensive and pushes the advice towards wide bands and contribution-only correction.
New Zealand does not have a general capital gains tax, and a genuine long-term investor selling shares is not usually taxed on the gain. That removes the largest cost in the overseas version of this decision and leaves only the trading cost, which on the worked example is measured in single-digit dollars a year.
The caveat is that trading frequently rather than investing can change your tax position, so if this describes you the question is worth taking advice on rather than assuming.
Related NZ Portfolio Calculators
- Portfolio Rebalance Calculator: the trades to get back to target.
- One Fund vs Multi-Fund Calculator: what this work is worth per hour.
- Fund Overlap Calculator: whether the target you set is the one you hold.
- Home Bias Calculator: your NZ weight against the global benchmark.
- Index Concentration Calculator: concentration inside the growth side.
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