Rebalancing Drift

Rebalancing Drift (also known as portfolio drift) occurs when the actual weights of assets in a portfolio gradually deviate from their target allocations due to differential asset performance over time. For example, if stocks significantly outperform bonds over a bull market, the equity allocation grows beyond its target.

Consider a 60/40 portfolio started in January 2020. After the 2020-2022 bull run, the S&P 500 gained over 70% while bonds barely moved. Without rebalancing, the equity allocation might drift to 75-80%, exposing the investor to far more equity risk than intended.

Portfolio managers use several rebalancing triggers: Calendar-based (rebalance quarterly or annually), Threshold-based (rebalance when any asset drifts more than 5% from its target), or a combination of both. Research shows threshold-based rebalancing is often more tax-efficient than calendar-based.

Tactical strategies like GEM and Dual Momentum automatically handle drift by fully rotating between assets based on momentum signals — the portfolio is always 100% in one asset. Static portfolios (Permanent, All Weather) require annual rebalancing. Our Rebalancing Calculator helps compute the exact trades needed to restore target weights.