# What Is Portfolio Rebalancing? Target Weights Explained

> Portfolio rebalancing restores target weights by buying the underweight and selling the overweight. Here's the trade math, and a mode that never sells.

Source: MarketCapLens — https://www.marketcaplens.com/learn/what-is-portfolio-rebalancing
Updated: 2026-09-22

Portfolio rebalancing restores a mix you already chose. If one holding grew faster than the other,
its weight drifted up. The trade that puts weights back is simple: target weight times the total,
minus what you already hold. That is arithmetic, not a view on which name is better.

**Key takeaways**

- Trade = target weight × total value − current value.
- Targets must add to **100%**. They are not scaled to fit.
- A positive trade is a buy; a negative trade is a sell.
- Contribution-only mode uses new cash to buy underweights and **never sells**.

## The formula

> **Trade = target weight × total value − current value**

Total value is the sum of the holdings plus any new cash you type. $6,000 in one name and $4,000 in
another, with 50/50 targets, means the first is $1,000 overweight and the second is $1,000
underweight. Buy $1,000 of the second by selling $1,000 of the first.

60% and 40% is a complete mix. 60% and 30% is not. The missing 10% is not filled in, because
scaling in silence would change every trade.

Run the same 50/50 example in the [rebalancing calculator](https://www.marketcaplens.com/tools/rebalancing-calculator).

## Contribution-only

Sometimes the rule is “add cash, do not sell.” New money buys the names that sit below target.
Overweights stay put. If the contribution cannot reach every target, leftover demand stays unmet
rather than forcing a sale. Leftover cash is shown when every target is already met.

That mode does not claim to be better. It is a constraint: no sells.

## What rebalancing tells you

It sizes the trades that would restore the mix you typed, given today’s values. Drift is a
description of the past path, not a forecast.

## What rebalancing leaves out

The calculator does not know about taxes, trading costs, or whether a name is even tradable. It
does not pick targets for you. Two names such as [Apple](https://www.marketcaplens.com/company/AAPL) and
[Microsoft](https://www.marketcaplens.com/company/MSFT) can stand in for a two-asset mix in an example; their live market caps
are not a recommended 50/50. Type your own values.

Rebalancing is also not a return statistic. For a lump-sum path use [CAGR](https://www.marketcaplens.com/learn/what-is-cagr); for
dated deposits use [XIRR](https://www.marketcaplens.com/learn/what-is-xirr). Putting dividends back to work is a different
mechanic — see [DRIP](https://www.marketcaplens.com/learn/what-is-drip).

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*For general education only. Nothing here is investment advice.*

## Frequently asked questions

### What is portfolio rebalancing?

Rebalancing restores the mix you chose. Trade equals target weight times total value, minus what you already hold. $6,000 and $4,000 with 50/50 targets means sell $1,000 of the first and buy $1,000 of the second. The MarketCapLens rebalancing calculator uses this formula.

### Why must target weights add to 100%?

The leftover is not filled in for you. 60% and 40% is fine. 60% and 30% is not — the missing 10% would silently change every trade if it were scaled. Type a complete mix.

### What is contribution-only rebalancing?

New cash is used to buy underweights. Overweights are never sold. If the contribution cannot reach every target, leftover demand stays unmet rather than forcing a sale.