Does a rebalance bonus exist?
Posted: Fri May 30, 2014 4:38 pm
Inspired by a debate on another thread, I decided to sacrifice my afternoon and run the numbers from Peak2Trough's site to see if there is such a thing as a rebalance bonus in the PP with 35/15 rebalance bands. Starting on January 1 of each year since 1972, I calculated the CAGRs for PPs (with dividends reinvested) with either 35/15 rebalance bands or without rebalancing at all. Here is a chart showing the numbers (excluding 2013 and 2014, where no rebalancing has occurred):
Here is a chart of the "rebalance bonus" -- the difference between rebalancing or not:
In six of the years (1980–1983, 2006, and 2012), buy-and-hold was the preferred strategy. In the other 35 years, however, this rebalancing strategy would have paid off (ignoring fees and taxes). Overall, the average rebalancing bonus has been 0.53%.
Based on this analysis, I would recommend rebalancing to anyone investing in the PP (again, ignoring taxes and fees—or any "January 1" effect).
Here is a chart of the "rebalance bonus" -- the difference between rebalancing or not:
In six of the years (1980–1983, 2006, and 2012), buy-and-hold was the preferred strategy. In the other 35 years, however, this rebalancing strategy would have paid off (ignoring fees and taxes). Overall, the average rebalancing bonus has been 0.53%.
Based on this analysis, I would recommend rebalancing to anyone investing in the PP (again, ignoring taxes and fees—or any "January 1" effect).