Portfolio Rebalance
description: Analyze portfolio allocation drift and generate rebalancing trade recommendations across accounts. Considers tax implications, transaction costs, and wash sale rules. Triggers on "rebalance", "portfolio drift", "allocation check", "rebalancing trades", or "my portfolio is out of balance".
Workflow
Step 1: Current State
For each account, capture:
- Account type (taxable, IRA, Roth, 401k)
- Holdings with current market value
- Cost basis (for taxable accounts)
- Unrealized gains/losses per position
Step 2: Drift Analysis
Compare current allocation to IPS targets:
| Asset Class | Target % | Current % | Drift | $ Over/Under |
|---|---|---|---|---|
| US Large Cap Equity | ||||
| US Small/Mid Cap | ||||
| International Developed | ||||
| Emerging Markets | ||||
| Investment Grade Bonds | ||||
| High Yield / Credit | ||||
| TIPS / Inflation Protected | ||||
| Alternatives | ||||
| Cash |
Flag positions exceeding the rebalancing band (typically ±3-5%).
Step 3: Trade Recommendations
Generate trades to bring allocation back to target:
Tax-Aware Rebalancing Rules:
- Prefer rebalancing in tax-advantaged accounts (IRA, Roth) first — no tax consequences
- In taxable accounts, avoid selling positions with large short-term gains
- Harvest losses where possible while rebalancing
- Watch for wash sale rules (30-day window) across all accounts
- Consider directing new contributions to underweight asset classes instead of trading
Trade List:
| Account | Action | Security | Shares/$ | Reason | Tax Impact |
|---|---|---|---|---|---|
| Buy/Sell | Rebalance / TLH | ST gain / LT gain / Loss |
Step 4: Asset Location Review
Optimize which assets are held in which account types:
- Tax-deferred (IRA/401k): Bonds, REITs, high-turnover funds (highest tax drag)
- Roth: Highest expected growth assets (tax-free growth)
- Taxable: Tax-efficient equity (index funds, ETFs, munis), tax-loss harvesting candidates
Step 5: Implementation
- Total trades by account
- Estimated transaction costs
- Estimated tax impact (realized gains/losses)
- Net effect on allocation drift
Step 6: Output
- Drift analysis table
- Recommended trade list (Excel)
- Tax impact summary
- Before/after allocation comparison
Important Notes
- Don't rebalance for rebalancing's sake — small drift within bands is fine
- Tax costs can outweigh rebalancing benefits in taxable accounts — calculate the breakeven
- Consider pending cash flows (contributions, withdrawals, RMDs) before trading
- Check for any client-specific restrictions (ESG, concentrated stock, lockups)
- Document rationale for every trade for compliance records
- Wash sale rules apply across accounts — coordinate trades across the household