Contribution-Only Rebalancing
Update target amounts.
Estimated reading time: 1 minute
The SEC’s investor guide describes rebalancing through new purchases or redirected contributions, not only sales. New money also changes the portfolio total.
Fictional portfolio: category A holds $70,000 and B holds $30,000. An already-chosen target is 60% A and 40% B. This example does not recommend that allocation.
At the current $100,000 total, B appears $10,000 below target. But adding $10,000 solely to B produces a $110,000 portfolio: A is 63.64% and B is 36.36%, rounded. The original dollar gap was not the required contribution.
Instead, suppose $20,000 of new money is available. The resulting total is $120,000, so target holdings are $72,000 A and $48,000 B. Add $2,000 to A and $18,000 to B; no sales are needed in this model.
Calculate targets from the post-contribution total, then subtract existing holdings. Assume unchanged prices, divisible purchases, and no fees, taxes or account restrictions. Actual costs and restrictions need review. This arithmetic neither selects investments nor establishes that contributing money is affordable or appropriate.
