How the 5/25 rebalancing band is calculated
The rule, popularized among Bogleheads investors and attributed to Larry Swedroe, applies two thresholds to every holding and uses whichever one is tighter.
Written out: a holding is out of balance when it moves more than 5 percentage points away from its target, or more than a quarter of its own target weight away, whichever happens first.
Why two thresholds instead of one
A single flat band treats every sleeve the same, which breaks at both ends. A flat 5 point band lets a 5 percent allocation double to 10 percent without ever triggering. A flat 25 percent relative band lets a 60 percent allocation swing to 75 percent. Taking the tighter of the two keeps both large and small sleeves under sensible control.
| Target weight | Absolute band | Relative band | Band that applies | Rebalance outside |
|---|---|---|---|---|
| 60% | 5.0 pp | 15.0 pp | Absolute | 55% to 65% |
| 40% | 5.0 pp | 10.0 pp | Absolute | 35% to 45% |
| 20% | 5.0 pp | 5.0 pp | Identical | 15% to 25% |
| 10% | 5.0 pp | 2.5 pp | Relative | 7.5% to 12.5% |
| 5% | 5.0 pp | 1.25 pp | Relative | 3.75% to 6.25% |
The crossover sits at a 20 percent target, because 25 percent of 20 is exactly 5 percentage points. Above 20 percent the absolute band governs; below it the relative band does. Changing the inputs above moves that crossover: it is always the absolute band divided by the relative band.
Bands are a policy, not a signal: a breach means an allocation left the range you chose, not that a trade is advisable. Transaction costs, bid-ask spreads, capital gains, wash-sale rules, and contribution timing all affect whether acting is worthwhile. This calculator reports structure and does not recommend trades.
Threshold rebalancing compared with calendar rebalancing
These are different policies and they answer different questions.
| Approach | Trigger | Strength | Cost |
|---|---|---|---|
| Calendar | A fixed date, such as annually or quarterly | Simple, predictable, easy to automate | Trades when nothing has drifted, and ignores drift between dates |
| Threshold (5/25) | An allocation leaving its band | Responds to actual market movement, not the calendar | Requires monitoring between reviews to notice a breach |
| Combined | Bands checked on a schedule | Bounded trading frequency with drift awareness | A breach can sit unaddressed until the next check |
The combined approach is the most common in practice, and its weak point is the gap between checks. That gap is the reason drift monitoring exists: bands only work if something is watching them. See the portfolio rebalancing guide for the broader policy discussion and how to monitor portfolio drift for the monitoring side.
What bands do not capture
A band check compares sleeve weights against sleeve targets. It says nothing about what sits inside those sleeves. Two portfolios can both be perfectly in band while holding very different underlying risk.
- Look-through concentration. A 60/40 split that is in band can still hold the same handful of megacap companies through several different funds. Measure it with the portfolio concentration calculator.
- Fund overlap. Two equity funds inside one sleeve may hold largely the same names. Check any pair with the ETF overlap checker.
- Volatility and correlation. Weights can be on target while the risk contribution of each sleeve shifts. See the portfolio risk formula.
Guardfolio's portfolio risk monitor tracks drift, overlap, and concentration together across connected accounts, so a band breach in one account is visible against the whole portfolio rather than in isolation.
Bands for common allocations
Precomputed 5/25 bands and a worked drift scenario for the allocations investors ask about most.
Rebalancing band questions
What is the 5/25 rebalancing rule?
The 5/25 rule rebalances a holding when it drifts from its target by 5 percentage points in absolute terms or by 25 percent of its own target weight, whichever band is tighter. Large allocations end up governed by the 5 point band and small allocations by the 25 percent band.
How do you calculate a rebalancing band?
Take the lesser of 5 percentage points and 25 percent of the target weight. A 60 percent target gets a 5 point band, so it triggers outside 55 to 65 percent. A 5 percent target gets a 1.25 point band, so it triggers outside 3.75 to 6.25 percent.
At what allocation do the two 5/25 thresholds cross over?
At a 20 percent target the two thresholds are identical, because 25 percent of 20 is 5 percentage points. Above 20 percent the absolute band binds and below 20 percent the relative band binds.
Is threshold rebalancing better than calendar rebalancing?
They answer different questions. Calendar rebalancing trades on a fixed schedule regardless of drift. Threshold rebalancing trades only when an allocation leaves its band, which reacts to market movement but requires monitoring between reviews. Many investors combine them by checking bands on a fixed schedule.
Are the weights entered into this calculator uploaded?
No. The calculation runs locally in the browser, and the entered labels, weights, and results are never transmitted. Standard site analytics record that the tool was used, not what was entered.
Know the moment a band breaks, not months later
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