Rebalancing Bands
Pre-set thresholds that tell you when an asset class has drifted enough to trigger a rebalance.
What You Need to Know
Rebalancing bands are guardrails that prevent over-trading while still keeping your portfolio on track. Instead of rebalancing on a strict calendar, you only act when an allocation crosses a tolerance band.
Typical Bands:
- ยฑ5% for major asset classes (stocks vs. bonds)
- ยฑ2% for sub-asset classes (U.S. vs. international stocks)
- Wider bands (10%) for volatile or alternative assets
Benefits:
- Cuts unnecessary trades and capital gains taxes
- Responds to meaningful market moves, not noise
- Keeps risk profile aligned with your plan
Example: Stock target = 60% with a ยฑ5% band. You only rebalance when stocks fall below 55% or rise above 65%.
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Related Terms in Investment Analysis
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest รท current price) or yield to maturity (total return if held until maturity).
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.