It has occurred to me that it might be important to rebalance not on a percentage deviation basis, but on a "percent off target percentage" basis. I'm sure that's confusing, let me explain:
If I target 60% for stocks, and my portfolio hits 62%, then I could rebalance if my tolerance was +/- 2% off target. I'm selling a bit higher and reallocating to lower-performing investments.
But if my target for REIT mutual funds is 8%, and I wait until it hits 10%, then the REIT fund has gone up over 20%. In the stock case above, I'm only up about 3% overall.
So it might make sense to rebalance not based upon an absolute percent difference (such as 2%), but as a percent off target percentage. For example, If I say that I don't want to be more than 10% off my target percentage, then I could let my stock allocation go to 66% (+10% of target percentage), but my REIT allocation could only go to 8.8% before I would rebalance. In that way, my rebalancing for any asset class occurs when the degree of being overvalued/undervalued is consistent within the class.
I'm still thinking this one through, I haven't seen it mentioned in any books. Anybody else considered this?