How Often to Rebalance Portfolio?

[Gearhead Jim]

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?

 

[brewer12345]

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.

 

[Dawg52]

Many opinions on this but I do it once a year. Here is a link that discusses it.
http://www.wamu.com/wmfinancial/pla...es/investingstrategies/RebalanceYourPortfolio

 

[wabmester]

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.

 

[lazyday]

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.

 

[Nords]

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.

 

[ESRBob]

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.

 

[TromboneAl]

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.