Portfolio Allocation & Rebalancing Calculator (Canada)

What this calculator does

Over time the asset classes that grow fastest come to dominate a portfolio, and the mix you chose drifts into something riskier or more concentrated than you intended. The calculator shows the gap between your current and target mix and the trades to close it, across five asset classes common for Canadian investors: Canadian equity, US equity, international equity, bonds or fixed income, and cash.

Enter the total portfolio value and the current and target weight for each class. The tool returns the largest single trade, the total to buy, the total to sell and the portfolio’s drift from target.

How the rebalancing trades are worked out

For each class the calculator applies the current and target percentages to the total value and takes the difference: positive means buy, negative means sell. When current and target weights each add up to 100%, total buys equal total sells, a useful check that your inputs are consistent.

Measuring drift

The calculator adds up the absolute gap between current and target weight for every class and divides by two, so an overweight and its matching underweight are not counted twice. A drift of one or two percent is usually nothing to worry about; ten percent or more means your risk has moved well away from your plan. Watching drift lets you rebalance on evidence rather than in reaction to every market move.

A worked example

A $100,000 portfolio has Canadian equity at 40% against a 30% target, US equity at 20% against 25%, international at 10% against 15%, bonds at 20% against 25%, and cash at 10% against 5%. You are $10,000 overweight in Canadian equity and $5,000 overweight in cash, and $5,000 underweight in each of US equity, international equity and bonds. Rebalancing means selling $15,000 and buying $15,000, with the largest single trade the $10,000 sale of Canadian equity. Drift is 15%.

When to use it

• Scheduled rebalancing, to produce the trade list for an annual or semi-annual review.
• Threshold rebalancing, to check whether any class has passed your limit.
• After a large market move, to see how far your risk has shifted.
• Adding new money, to direct contributions to the underweight classes first.

Registered and non-registered accounts

Inside an RRSP, TFSA, RESP or FHSA you can sell and buy to return to target without immediate tax, because gains there are sheltered. In a non-registered account, selling a holding that has risen realizes a capital gain, part of which is included in income and reported on Schedule 3. Many Canadian investors therefore do most of their rebalancing inside registered accounts and use new contributions rather than sales in taxable ones.

In the example, if the holdings sit in both a TFSA and a taxable account, making the $10,000 Canadian equity sale inside the TFSA realizes no capital gain, while the same sale in the taxable account would. The trade list is the same; the tax cost is not.

Asset location

Asset location means deciding which account holds which class. Interest-paying bonds, taxed as ordinary income, are often held in registered accounts, while Canadian dividend-paying equity can be more tax efficient in a taxable account because of the dividend tax credit. The calculator works at the whole-portfolio level and does not model account type, so place sells in registered accounts first where you can when turning its list into orders.

Common mistakes when rebalancing

• Rebalancing too often, which adds trading costs and, in a taxable account, tax.
• Selling winners in a non-registered account without checking the capital gain.
• Letting current or target weights stop summing to 100%, which breaks the match between buys and sells.
• Changing the target every time the market moves. Set it in writing and revisit it only when your goals or risk tolerance change.

Using new contributions to top up underweight classes is often the cheapest way to rebalance.

Assumptions and limits

The calculator works in whole asset classes, uses five fixed classes rather than individual holdings, and ignores trading costs, bid-ask spreads and the tax on selling in a non-registered account. It assumes you rebalance by trading. Where a sale would trigger a taxable gain, weigh the tax against the benefit of returning to target, and confirm the trades against your own accounts and tax situation before placing them.

This information is general in nature and is not financial advice.

About This Tool: Portfolio Allocation Calculator Canada

Portfolio allocation calculator canada: use this tool to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.