I apologize if this has been covered, but I couldn't find it when I searched.
In a tax advantaged account, with no commission to trade, is it better (historically) to rebalance once a year or to simply wait to reach a band.
It does not bother me at all psychologically when the assets run close to the limits of the bands.
Rebalancing
Moderator: Global Moderator
Rebalancing
"All men's miseries derive from not being able to sit in a quiet room alone."
Pascal
Pascal
Re: Rebalancing
I am quite sure the 15/35 bands work better... due to the "momentum-nature" of the asset movements that have normally had a decent amount of correlation to their prior-year performance.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: Rebalancing
Thanks.moda0306 wrote: I am quite sure the 15/35 bands work better... due to the "momentum-nature" of the asset movements that have normally had a decent amount of correlation to their prior-year performance.
That's what I pretty much figured.
"All men's miseries derive from not being able to sit in a quiet room alone."
Pascal
Pascal
Re: Rebalancing
IIIRC the general rule is that more frequent rebalancing means slightly lower volatility and slightly lower returns. Intuitively, allowing assets to run up and down makes for a choppier ride but captures more of rebalancing bonus. Historically 15/35 bands would rebalance less than annually, so they are the slightly higher volatility/return option. Again IIRC the difference is quite slight so it doesn't matter too much which way you go.
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Bobby
Re: Rebalancing
I've read in a couple of articles that claim backtesting, that the first day of each month provides optimum balance. More rebalancing doesn't make much difference and raises transaction fees if you do it too often.