"Hold to the weights you once set" — advice you've read plenty of times in books, but applying it in practice isn't simple. Monthly vs annual? A 1pp drift vs 5pp? And if you're a Korean resident, you can't ignore the capital-gains tax / dividend income tax that fires every time you sell. This article covers four rebalancing strategies and a practical guide for the Korean tax environment.
In theory, rebalancing delivers two effects:
| Strategy | Trigger | Pros / cons |
|---|---|---|
| Time-based | Quarterly / semi-annual / once a year | Simple, easy to automate / forces trades regardless of market moves |
| Threshold-based | Weight drift ±5pp | Only when actually needed / frequent trades in big market swings |
| Hybrid | Quarterly check + execute only if ≥5pp | The generally recommended approach / needs monitoring |
| New-cash routing | Buy the lagging assets with monthly contributions / dividends | Zero selling, zero tax / requires a large enough contribution |
Vanguard's white papers (2010, 2018) recommend the hybrid "once a year + execute only if ≥5pp." Frequent rebalancing like monthly/weekly lets trading costs + taxes eat into the alpha.
Ordinary individuals who are not "large shareholders" pay no capital-gains tax (as of 2026). Only the transaction tax of 0.18% (KOSPI) / 0.28% (KOSDAQ) plus brokerage fees apply.
When annual capital gains exceed KRW 2.5 million, a 22% tax applies (20% capital-gains + 2% local tax). Gains and losses can be netted (selling a losing position in the same year offsets the gains).
Domestically listed ETFs (including those holding foreign assets) → 15.4% dividend income tax on sale (on the profit portion only). No KRW 2.5 million capital-gains deduction. US-listed ETFs (e.g., SPY, VOO) → classified as foreign capital gains → eligible for the KRW 2.5 million deduction.
For Korean investors with a large weight in foreign stocks, "rebalance only within the KRW 2.5 million deduction limit" is the most efficient. Anything beyond that should be routed through new cash or deferred to the following year.
When a monthly contribution or dividend comes in, allocate it first to the assets whose weight lags the overall target. Since there's no selling, capital-gains tax is zero.
Example — Target: US 60% / Korea 30% / Bonds 10%, Current: US 70% / Korea 25% / Bonds 5%, monthly contribution KRW 1 million.
Over a few months, the portfolio naturally converges toward the target weights. Zero tax, minimal trading costs.
If the contribution is large enough (monthly ≥ 1% of the portfolio), new-cash routing alone is sufficient. If contributions are small or the drift is large (10pp+), use threshold-based selling/buying.
Multifolios provides targetAlloc (target-weight settings) + rebalancing alerts:
Alerts fire once a day — cutting out noise on high-volatility days.
Rebalancing isn't "resetting the weights" — it's "tax-efficient weight resetting." Korean residents should keep the KRW 2.5 million foreign-stock capital-gains deduction in mind and handle large drifts via new-cash routing to protect the margin of the alpha.