Shouldn't Rebalancing Result in Higher Returns?

[chinaco]

I wonder then is it better to rebalance per a a time period ( be it 6 months, 1 year or three years) or by percentage off target (say when the 60/40 goes to 50/50?

Time interval and % deviation are the two most common approaches. However, there can be other considerations that play into the overall management approach to optimize growth (for example tax efficiency).

IMHO - I prefer a simple approach that keeps me from getting hurt by market turbulence. Once you have diversified across some asset classes, within the asset class, and across countries...you are fairly well protected from a number of common risks. Once you have diversified, you are then trying to stick with your target portfolio to protect against market ups and downs ( a nice by product is locking in some of the gain related to an increase). I would like to optimize the whole thing to peak efficiency so that I get maximum returns... but once you are diversified, rebalancing is about staying that way (close to the target portfolio).

 

[mathjak107]

the problem too is what a lot of people call diversification really isnt. they still try to predict the future and shy away from even owning asset classes they think wont go up anymore because they already had a great run, like commodities or long term bonds , or asset classes they choose not to own because their crystal ball says its not time.
rebalancing for alot of fortune tellers is merely moving from growth stocks to value stocks or international stocks.....

they dont really own the right asset classes to have diversification even alter their volatility