Rebalancing bot: keep your portfolio at its target mix

Written by the Tactfolio research teamPublished Data as of 4 min read

A rebalancing bot keeps a portfolio at its target mix by trading back to set weights on a schedule. On Tactfolio you can start from three ready-made mixes: the 60/40 portfolio, the Golden Butterfly and the Three-Fund Portfolio. Test them on decades of prices, then run them on paper or in your own Alpaca account.

Key points#

  • A rebalancing bot sells some of what went up and buys what went down, back to your targets.
  • It has no signals. It only keeps the mix you chose.
  • The 60/40 template rebalances every month. The Golden Butterfly and the Three-Fund Portfolio rebalance once a year.
  • In the backtests, all three mixes fell less than the S&P 500 in their worst crash, but all three lost money in 2022.
  • You can change the funds, the weights and the schedule before you run it.

What is portfolio rebalancing?#

Rebalancing means trading a portfolio back to its target weights. Say your plan is 60% stocks and 40% bonds. After a strong year for stocks, you might hold 70% stocks. Rebalancing sells stocks and buys bonds until you are back at 60/40.

The point is to keep your risk where you chose it. Without rebalancing, a portfolio drifts toward whatever has risen most. A bot does this for you on a fixed date, so you never skip it or second-guess it.

The three rebalancing bot templates#

TemplateWhat it holdsWorst drawdown
60/40 portfolio60% SPY (US stocks), 40% IEF (Treasury bonds)About 33%
Golden Butterfly20% each in VTI, VBR, TLT, SHY and GLDAbout 20%
Three-Fund Portfolio64% VTI (US stocks), 16% VXUS (world stocks), 20% BND (bonds)About 28%

A drawdown is how far a portfolio falls from its last high point. The worst drawdowns above come from each backtest that uses real ETF prices. For comparison, the S&P 500’s worst drawdown was about 55% over the longer 60/40 and Golden Butterfly backtests, and about 34% over the Three-Fund backtest, which starts in 2011.

How did these rebalancing bots do in the backtest?#

All three mixes earned less than the S&P 500 and fell less. These figures come from each strategy’s article. The 60/40 and Golden Butterfly figures were measured on prices through September 25, 2026, and the Three-Fund figures through October 15, 2026.

  • 60/40 portfolio. From mid-2002 it returned about 8% a year, against 11% for the S&P 500. In 2008 it lost 18% while the S&P 500 lost 37%. In 2022 it lost 17%, nearly as much as the S&P 500, because stocks and bonds fell together.
  • Golden Butterfly. From late 2004 it returned about 8% a year. In 2008 it lost about 5% while the S&P 500 lost 37%. In 2022 it lost 13%. It lagged most in strong stock years, gaining about 6% in 2013 while the S&P 500 rose 32%.
  • Three-Fund Portfolio. From early 2011 it returned about 10.5% a year, against 14% for the S&P 500. Its worst drawdown was about 28%, in the COVID crash of 2020. In 2022 it lost about 18%, close to the S&P 500, because its bond fund fell too.

These are hypothetical backtests on past prices with a 0.05% cost on every trade. They are not a track record, and the future can look very different. Read why past results mislead before you rely on any of them.

How to run a rebalancing bot on Tactfolio#

You can go from a template to a running bot in five steps.

  1. Open a template. Open the live 60/40 strategy, the live Golden Butterfly strategy or the live Three-Fund strategy.
  2. Copy it to your account. Sign up for free and copy the strategy. Your copy is yours to change.
  3. Change the mix if you want. In the builder, swap a fund, change a weight, or pick a different rebalance schedule. The backtest reruns as you edit.
  4. Run it on paper. In Trade, a paper account runs the bot with pretend money at real market prices and emails you a summary after each close.
  5. Connect Alpaca when you are ready. Use your own Alpaca account, paper or live, with your own API keys. The bot trades only the starting balance you give it.

When does a rebalancing bot struggle?#

  • Stocks and bonds falling together. When rates rise fast, as in 2022, bonds stop cushioning stock losses.
  • Strong stock markets. A mix with bonds or gold trails an all-stock portfolio when stocks rise quickly.
  • Small accounts and frequent trades. Each rebalance trades a little, and costs add up. Rebalancing less often trades less.

Common questions#

What does a rebalancing bot do?#

It trades your portfolio back to its target weights on a schedule. It sells some of what has grown too large and buys what has shrunk. It does not try to predict the market.

How often should a portfolio be rebalanced?#

Common choices are monthly, quarterly or yearly. The 60/40 template rebalances monthly. The Golden Butterfly and the Three-Fund Portfolio rebalance once a year. Rebalancing less often means fewer trades.

Can I build my own rebalancing mix?#

Yes. Start a blank strategy in the builder, add your funds inside a Weight block, set the percentages, and choose how often to rebalance. Then check the backtest before you run it.

Is a rebalancing bot free?#

Yes. Everything on Tactfolio is free while we build, including backtests, paper trading and running a bot in your own Alpaca account.

Can a rebalancing bot use leveraged ETFs?#

A strategy can hold leveraged and inverse ETFs like any other fund. These funds reset daily. Held for longer, their returns can differ a lot from the multiple in their name.

Sources

The ideas behind this bot