lem1955
Recycles dryer sheets
- Joined
- Mar 1, 2007
- Messages
- 315
When one is looking at index funds with enormous diversification is rebalancing stupid catching a falling knife or wise stewardship of a portfolio?
Catching a falling knife or Rebalancing?
- Thread starter lem1955
- Start date
Yes, I reckon it can be both. There’s a happy medium one should strive towards. I’ll be buying more equities if the S&P drops below 2400. Otherwise, I will rebalance the first week of the year, just like the past six.
the whole point of rebalancing to a specific AA is to realize that sometimes you will be rebalancing in a falling market. The concept is to make the rational decision of what your AA will be when one has the opportunity to think about it rationally, i.e. when the market is not being unusually volatile, so one doesn't try to outthink the market during the crazy periods.
One way to avoid "catching the falling knife" is to be disciplined about how often you rebalance. If you do it quarterly, semi-annually, yearly, you take some of the yo-yo effect out of the process, by giving the short-term volatility a chance to smooth out over the longer term.
One way to avoid "catching the falling knife" is to be disciplined about how often you rebalance. If you do it quarterly, semi-annually, yearly, you take some of the yo-yo effect out of the process, by giving the short-term volatility a chance to smooth out over the longer term.
