Real‑world examples of portfolio rebalancing performance examples investors can learn from

Examples of portfolio rebalancing performance examples in a 60/40 stock–bond portfolio

The cleanest way to see the impact of rebalancing is to start with a classic 60/40 U.S. stock–bond portfolio. Think of:

• Stocks: U.S. total stock market (e.g., tracking the CRSP or Wilshire 5000 index)
• Bonds: U.S. investment‑grade aggregate bonds (e.g., Bloomberg U.S. Aggregate)

Data from the Federal Reserve and long‑run index histories show that stocks have outperformed bonds over most rolling 10‑year periods, but with much higher volatility.¹ That sets up a natural testbed for examples of portfolio rebalancing performance examples.

Let’s compare three hypothetical portfolios from January 2000 through December 2023:

• Portfolio A – Buy and hold 60/40: No rebalancing, ever.
• Portfolio B – Annual calendar rebalancing: Reset to 60/40 every December 31.
• Portfolio C – 5% band rebalancing: Rebalance whenever stocks drift above 65% or below 55% of the portfolio.

(All numbers below are rounded and for illustration; they are directionally consistent with independent research from Vanguard and others.²)

Over this 24‑year window, which includes the dot‑com bust, the 2008 crisis, the 2020 COVID shock, and the 2022 inflation spike, stocks strongly outperformed bonds, so the buy‑and‑hold portfolio drifted toward a higher stock weight.

• Ending stock weight:
  • Portfolio A (no rebalance): drifts from 60% to ~75–80%
  • Portfolio B (annual rebalance): stays near 60%
  • Portfolio C (bands): mostly between 55–65%
• Volatility (standard deviation of annual returns):
  • Portfolio A: highest
  • Portfolio B and C: meaningfully lower
• Maximum drawdown (peak‑to‑trough loss):
  • Portfolio A: deepest drawdown in 2008–2009 and March 2020
  • Portfolio B and C: shallower drawdowns thanks to bonds being topped up after stock declines

The total return difference between the rebalanced portfolios and the buy‑and‑hold portfolio is often smaller than investors expect—sometimes just a few tenths of a percent per year—but the risk difference is significant. This is one of the best examples of portfolio rebalancing performance examples: you often give up a bit of upside in long bull markets in exchange for a smoother ride and better downside protection.

A 2020 COVID crash example of portfolio rebalancing performance

Let’s zoom into one of the most stressful modern periods: February–April 2020.

From the S&P 500 peak on February 19, 2020, to the March 23 low, U.S. stocks dropped about 34%, while high‑quality U.S. bonds were roughly flat to slightly positive as yields fell.³ That created a sharp imbalance in a 60/40 portfolio.

Imagine three investors starting on January 1, 2020 with $1,000,000 in a 60/40 stock–bond mix:

• $600,000 in stocks
• $400,000 in bonds

By March 23, 2020 (approximate COVID low):

• Stocks fall ~34% → \(600,000 becomes about \)396,000
• Bonds rise modestly (say ~3%) → \(400,000 becomes about \)412,000
• Total portfolio: ~$808,000
• New weights: ~49% stocks / 51% bonds

Investor 1 – No rebalance:

They do nothing at the bottom. They ride the recovery as‑is. By the end of 2020, U.S. stocks had rebounded sharply—up about 18% for the year including dividends, despite the crash.⁴ Their portfolio recovers, but it’s now structurally more conservative because they never topped up stocks at lower prices.

Investor 2 – Rebalances at the March 23 low:

They rebalance back to 60/40 on March 23. To do that, they:

• Sell bonds: trim from \(412,000 down to about \)323,000
• Buy stocks: increase from \(396,000 up to about \)485,000

Same total (~$808,000), but now:

• Stocks: 60%
• Bonds: 40%

As markets rebound into late 2020 and 2021, this investor has more dollars in stocks at lower prices, so their recovery is stronger. In many backtests, a timely March 2020 rebalance adds several percentage points to cumulative performance over the next 1–2 years compared with the investor who never rebalanced.

This is one of the clearest real examples of portfolio rebalancing performance examples: the discipline to buy what just crashed (stocks) and sell what held up (bonds) when every instinct is telling you to do the opposite.

2022 inflation shock: example of rebalancing when everything hurts

2022 was a different kind of pain. Both stocks and bonds fell as the Federal Reserve raised interest rates aggressively to fight inflation.⁵ A 60/40 portfolio, for the first time in decades, saw double‑digit losses in both components.

That makes 2022 a particularly interesting example of portfolio rebalancing performance examples, because rebalancing didn’t feel like “sell winners, buy losers.” It felt more like “sell the thing that did slightly less badly to buy the thing that did really badly.”

Using rough full‑year 2022 numbers:

• U.S. stocks (broad index): down ~18%
• U.S. investment‑grade bonds: down ~13%

Start again with $1,000,000 on January 1, 2022:

• $600,000 stocks
• $400,000 bonds

By December 31, 2022:

• Stocks: \(600,000 × (1 − 0.18) ≈ \)492,000
• Bonds: \(400,000 × (1 − 0.13) ≈ \)348,000
• Total: ~$840,000
• New weights: ~59% stocks / 41% bonds

Notice the drift is smaller than in 2020, but stocks still took a bigger hit. An annual rebalancing rule would say:

• Sell a bit of bonds
• Buy a bit of stocks

That sounds counterintuitive when both lost money—but historically, buying after bad years has boosted long‑term returns. Long‑horizon research by major asset managers shows that rebalancing after drawdowns tends to improve risk‑adjusted returns, even when both assets fell.⁶

By the end of 2023, U.S. stocks had posted a strong rebound, with the S&P 500 up sharply, largely driven by mega‑cap tech. The investor who rebalanced at the end of 2022 had slightly more exposure to that rebound than the investor who stayed underweight stocks after a bad year.

This is a subtle but important example of portfolio rebalancing performance examples: the benefit shows up not just when one asset goes up and the other goes down, but also when you lean into the relatively more beaten‑up asset after a broad sell‑off.

Tech‑heavy vs diversified: 2023–2024 rebalancing examples

The 2023–2024 period has been dominated by a handful of mega‑cap technology and AI‑related stocks. That created a different style of examples of portfolio rebalancing performance examples: sector and single‑stock concentration.

Imagine two investors who both started 2020 with a $1,000,000 portfolio:

• Investor A – Tech‑heavy: 80% U.S. large‑cap growth (tech‑tilted), 20% bonds, no rebalancing.
• Investor B – Diversified with bands: 60% global stocks (U.S. + international), 40% bonds, with a rule to rebalance if any asset class drifts more than 5 percentage points from target.

By mid‑2024, thanks to the surging performance of AI‑related names, Investor A’s portfolio might have drifted to something like:

• 90–95% stocks (mostly mega‑cap tech)
• 5–10% bonds

Investor B, by contrast, would have been systematically trimming tech exposure as it outperformed, redirecting gains into bonds and into lagging regions like international developed or emerging markets.

When markets are going straight up, the tech‑heavy, no‑rebalance portfolio often shows higher returns on paper. But it also sits on massive concentration risk. If tech corrects 30–40%, the tech‑heavy investor’s drawdown is brutal. The diversified, regularly rebalanced investor may underperform in the best years of the tech boom, but their portfolio is far more resilient to a sector‑specific shock.

This is one of the best examples of portfolio rebalancing performance examples at the asset‑class and sector level: rebalancing is as much about risk control as it is about returns.

Threshold vs calendar: band‑based examples of portfolio rebalancing performance

Calendar rebalancing (once a year, or quarterly) is simple, but it ignores how far a portfolio has drifted. Threshold, or band‑based, rebalancing focuses on magnitude of drift instead of the calendar.

Consider a 60/40 portfolio from 2010 through 2023, a period with a long bull market, a sharp 2020 crash, and the 2022 shock. Compare two investors:

• Calendar investor: Rebalances every December 31.
• Threshold investor: Rebalances only when stocks move outside a 55–65% band.

Some real examples of portfolio rebalancing performance examples from this setup:

• In quiet years with modest moves, the threshold investor might not rebalance at all, saving transaction costs and taxes.
• In years like 2013 or 2017 when stocks rally strongly, the threshold investor may rebalance mid‑year, trimming stocks when they hit 66–67% of the portfolio.
• In 2020, the threshold investor might rebalance twice: once on the way down (as stocks drop below 55%) and again on the way back up (as they overshoot 65%).

Academic and industry research suggests that reasonable threshold rules (e.g., 5–10 percentage points) can produce slightly better risk‑adjusted results than purely calendar‑based rules, because they respond directly to market moves rather than the date.⁷

Here, the key example of portfolio rebalancing performance is efficiency: fewer unnecessary trades in calm markets, more action when volatility actually creates big drifts.

Taxable vs tax‑advantaged: after‑tax performance examples

So far, we’ve largely ignored taxes. In real life, they matter a lot, especially for U.S. investors in high tax brackets.

Take two investors with the same 60/40 allocation and the same rebalancing rule, but different account locations:

• Investor T (Taxable): Entire portfolio in a taxable brokerage account.
• Investor R (Retirement): Entire portfolio in tax‑advantaged accounts (401(k), IRA).

Both rebalance annually. Over a 20‑year period, before taxes, their rebalancing performance looks similar. But after taxes, Investor T’s realized capital gains from selling appreciated assets every year can drag down net returns.

Real‑world planners often use examples of portfolio rebalancing performance examples like this to stress tax‑aware implementation:

• Prefer to rebalance inside tax‑advantaged accounts when possible.
• Use new contributions and dividends to move weights closer to target instead of selling appreciated positions.
• Harvest tax losses in taxable accounts to offset gains when markets are down.

The lesson from these examples includes a subtle point: the idea of rebalancing is the same, but the after‑tax performance depends heavily on where you implement it.

For more background on how long‑term compounding and taxes interact, the SEC’s investor education resources are a good starting point.⁸

Behavioral examples: performance isn’t just about math

One underappreciated category of examples of portfolio rebalancing performance examples is behavioral performance—how rebalancing helps people stick with their plan.

Consider two retirees in 2020, both with $1,000,000 and a target 50/50 stock–bond mix.

• Retiree A – No rules: Watches the market every day, makes decisions based on headlines.
• Retiree B – Written rebalancing policy: Rebalance to 50/50 once a year, and also if stocks move outside a 45–55% band.

When COVID hits and stocks tank, Retiree A panics and sells half of their stocks near the bottom, moving to 25% stocks / 75% bonds. They lock in losses and miss much of the rebound.

Retiree B follows the written rule, rebalances back to 50/50, and then does nothing. Their portfolio recovers much faster.

On paper, this is another example of portfolio rebalancing performance examples. In practice, it’s a story about discipline. Rebalancing gives investors a reasoned, mechanical action during chaos, which can prevent emotionally driven decisions that permanently damage long‑term returns.

The behavioral finance literature is full of evidence that rules and pre‑commitment devices can improve outcomes by reducing panic selling and performance chasing.⁹

FAQs: examples of how and when to rebalance

Q: Can you give a simple example of portfolio rebalancing performance over 10 years?
Imagine a 60/40 portfolio from 2014–2023. Stocks do well overall, bonds lag. The no‑rebalance portfolio drifts to ~75% stocks by 2023 and shows a higher total return but also a larger drawdown in 2022. The annually rebalanced portfolio ends with slightly lower total return but lower volatility and a smaller 2022 loss. This is a plain‑vanilla example of how rebalancing trades a bit of upside for a smoother ride.

Q: What are some of the best examples of rebalancing rules in practice?
Common real examples include annual rebalancing on a fixed date, semiannual rebalancing, and threshold rules like “rebalance if any asset class is more than 5 percentage points from target.” Some investors blend them: check quarterly, but only trade if thresholds are breached. The performance differences among sensible rules tend to be modest; the bigger benefit comes from having any consistent rule.

Q: Are there examples of portfolio rebalancing performance where rebalancing hurts returns?
Yes. In a long, nearly uninterrupted bull market—say U.S. stocks from 2010–2019—rebalancing from stocks into bonds each year can slightly reduce total return compared with never rebalancing, because you keep trimming the winning asset. However, you still get lower volatility and a more stable risk profile, which many investors value more than squeezing out every last bit of return.

Q: How often should I rebalance in a taxable account?
Many advisors use real‑world examples to show that over‑rebalancing in taxable accounts can generate unnecessary capital gains. A common approach is to rebalance once a year or when thresholds are breached, but to first use new contributions and dividends to move weights toward target. Only then, if needed, do they sell positions and realize gains.

Q: Are there examples of rebalancing across multiple accounts (401(k), IRA, taxable)?
Yes. A typical example is to hold more bonds in tax‑advantaged accounts and more stocks in taxable accounts, then do most of the rebalancing inside the 401(k) or IRA. That way, you maintain your overall allocation across all accounts but minimize taxable events. The performance benefit here is mostly about after‑tax returns, not just pre‑tax performance.