Highlights:

• How to rebalance an ETF portfolio and keep your investments aligned with your target allocation
• How to invest new contributions while keeping your portfolio on track
• How tools like Passiv automatically calculate the trades needed to rebalance your portfolio

What is portfolio rebalancing?

Portfolio rebalancing means adjusting your investments so they match your original plan.

For example, imagine your portfolio looks like this:

🇺🇸 VFV.TO (US stocks): 46%

🇨🇦 VCN.TO (Canadian stocks): 27%

🌍 VDU.TO (International stocks): 27%

This is your target allocation.

Why do investments become unbalanced

Over time, your portfolio drifts as some funds grow faster than others.

Say your Canadian fund grew faster than others, so now your portfolio looks like this:

🇺🇸 VFV.TO: 42%  ⬇

🇨🇦 VCN.TO: 36% ⬆

🌍 VDU.TO: 22% ⬇

Your Canadian fund is taking up a bigger percentage of your portfolio than you’d planned.

What rebalancing does

Rebalancing brings your portfolio back to your original plan.

There are a few ways you can do this:

• Buy more of the funds that are a bit low

• Sell a bit of the fund that grew the most

• Add more money and buy more of the funds you need

“How can I rebalance my portfolio?”

Manually

You can manually calculate and place the trades yourself through your brokerage.

Look at your current allocation, compare it to your target, and decide what to buy or sell to bring the portfolio back in line.

This works, but it’s time consuming.

Spreadsheet

You can use a spreadsheet to calculate your allocation and determine the trades needed to rebalance.

You then have to go place the trades manually through your brokerage account.

Automatically

You can also use a tool that automatically calculates what to buy or sell to rebalance.

For example, Passiv shows exactly what to buy or sell to balance your portfolio - and Passiv Elite will even do it all for you.

How to balance your investment portfolio, step by step

Step 1: See what your portfolio looks like today

The first step is simply looking at how your portfolio is currently divided.

Check what percentage of your money is in each ETF, and compare that to what you’d originally planned.

You will quickly see which investments are higher or lower than what you wanted.

Step 2: Figure out what needs to change

Decide how to bring your portfolio back to your original plan.

That usually means figuring out:

• What to sell

• What to buy

• How much of each fund

It gets even more confusing if your money is spread across different accounts, like a TFSA, RRSP, and a regular taxable account.

Step 3: Use new money to help rebalance

You can also rebalance by adding new money to your portfolio.

Instead of selling anything, you invest new contributions into the ETFs that are lower than your target.

For example, if international stocks are lower than planned, you could put your next contribution into that ETF.

However, you still need to do the calculations to figure out how much to buy in order to balance your account.

Step 4: Place trades

Now that you know what you need to buy and sell, you can go ahead and place the trades in your brokerage account.

Because each trade is placed separately, you may end up making several trades across multiple accounts.

For example, you might need to:

• Sell a small amount of an ETF in your TFSA

• Buy another ETF in your RRSP

• Invest new money into a different fund in your taxable account

This process can be finicky and time consuming.

Step 5: Automate the process

The good news is that you don’t actually need to calculate any of this yourself. Many investors now use tools that automatically calculate the trades needed to rebalance their portfolio.

These tools show exactly what to buy or sell to get back on track. Instead of doing the math yourself, the system simply tells you what to do.

Some tools can even place all the trades for you automatically, so you can rebalance your entire portfolio in just a few minutes.

For example, Passiv Elite can calculate the trades needed to rebalance your portfolio and place them for you in one click.

What portfolio rebalancing looks like in practice

Let’s go back to the earlier example where the Canadian funds grew faster than others:

🇺🇸 VFV.TO: 42%  ⬇

🇨🇦 VCN.TO: 36% ⬆

🌍 VDU.TO: 22% ⬇

Your portfolio has drifted away from your plan, so to bring things back in line you might need to:

• Buy more VFV.TO 🇺🇸

• Sell some VCN.TO 🇨🇦

• Buy more VDU.TO 🌍

Figuring out the exact amounts takes time if you do it manually.

Instead of calculating these numbers yourself, tools like Passiv can do it instantly.

What is Passiv?

Passiv is a portfolio management and automatic rebalancing tool for DIY investors.

It tells you what to buy to keep your investments on track and can place all the trades for you with one click.

Get started with Passiv

If calculating trades and managing spreadsheets sounds like a lot of work, Passiv can simplify the process.

Instead of figuring out the numbers yourself, Passiv simply shows you what to buy or sell to stay on track.

Most people set up their account in just a few minutes.

After that, rebalancing your portfolio can take only a few clicks.

You can create a free Passiv account and start keeping your portfolio on track here.