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How Often to Rebalance Portfolio?
Old 10-21-2005, 12:36 PM   #1
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How Often to Rebalance Portfolio?

There has been a lot of research about the idea of a 4% SWR, but what about how often to rebalance?

My portfolio is about 50-50 stocks/CDs, with enough cash that i could rebalance every day if i wanted to. Or every 1%.

Any comments, or links to published studies?
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Re: How Often to Rebalance Portfolio?
Old 10-21-2005, 12:43 PM   #2
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Re: How Often to Rebalance Portfolio?

There is research out there, but I am too lazy to look it up. IIRC, the longer you wait to rebalance, the better your returns. Once a year should be fine.
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Re: How Often to Rebalance Portfolio?
Old 10-21-2005, 12:46 PM   #3
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Re: How Often to Rebalance Portfolio?

Many opinions on this but I do it once a year. Here is a link that discusses it.
http://www.wamu.com/wmfinancial/plan...eYourPortfolio
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Re: How Often to Rebalance Portfolio?
Old 10-21-2005, 12:49 PM   #4
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Re: How Often to Rebalance Portfolio?

Beware of research in this area. * It is all pretty much guaranteed to be bogus. * If one of your asset classes is running, it obviously will hurt you if you rebalance before the run is over. * *The studies tend to just try to fit historical cycles, and based on those cycles they'll say something like "the optimal rebalance frequency is once every two years." * Of course, if the cycles are different in the future (and they will be), that frequency will no longer work.

Rebalance whenever you feel like it. * Or never. *It shouldn't really matter unless we hit another period like the last 20-years in which both stocks and bonds did well and you really couldn't lose by rebalancing.
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Re: How Often to Rebalance Portfolio?
Old 10-21-2005, 01:03 PM   #5
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Re: How Often to Rebalance Portfolio?

I think there's a tradeoff: too often, and you increase your transaction costs and taxes (and maybe lose a bit of return because of serial correlation) but if you wait too long, I think you increase your risk, as you'll be overweight what's up, compared to where you started.
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Re: How Often to Rebalance Portfolio?
Old 10-21-2005, 04:32 PM   #6
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Re: How Often to Rebalance Portfolio?

Quote:
Originally Posted by wab
Beware of research in this area. * It is all pretty much guaranteed to be bogus. * If one of your asset classes is running, it obviously will hurt you if you rebalance before the run is over. * *The studies tend to just try to fit historical cycles, and based on those cycles they'll say something like "the optimal rebalance frequency is once every two years." * Of course, if the cycles are different in the future (and they will be), that frequency will no longer work.
Try to split the difference-- wait until you're more than 5% or 10% away from your original 50-50 allocation. The longer you wait, the more it's long-term cap gains and lower tax rates.
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Re: How Often to Rebalance Portfolio?
Old 10-21-2005, 08:55 PM   #7
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Re: How Often to Rebalance Portfolio?

The point of Rebalancing is to sell high, buy low, so some form of it has to be good. I have heard everything from "Rebalance Weekly or monthly" from a broker who got paid when I did the trades to "Rebalance every three years" from an academic who' backtested with historical data. I do it once a year because it just feels like a reasonable schedule. I wouldn't skip it entirely, though. That pulls you back into the old 'ride with my winners' thinking that gets so many peiple sucked into the meat grinder.
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Re: How Often to Rebalance Portfolio?
Old 10-22-2005, 10:06 AM   #8
 
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Re: How Often to Rebalance Portfolio?

The other point of rebalancing is to keep your allocation appropriate for your situation. If after much research and thought you decide that a 60/40 stock/bond split is good for you, and your don't rebalance, you may no longer have that 60/40 split.
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