Gyroscopic Investing

ngcpa wrote: In a few months I am thinking of increasing my PP by about 40%.  Would you think it would be better to add enough cash to each component to make them equal again or to add the cash prorated by each component to keep the same ratio.  In other words rebalance as you are adding the $ or maintain the current ratio.  I am leaning toward the latter.  What do you think?

Storm wrote:

ngcpa wrote: In a few months I am thinking of increasing my PP by about 40%.  Would you think it would be better to add enough cash to each component to make them equal again or to add the cash prorated by each component to keep the same ratio.  In other words rebalance as you are adding the $ or maintain the current ratio.  I am leaning toward the latter.  What do you think?

Someone did a backtest in another thread and found that the highest returns were made by putting an equal dollar amount in every asset (dollar cost averaging) rather than trying to rebalance.  It seems like this would be mainly due to capturing the momentum of the winning asset (example, stocks are up one year but they still have more gains).

On the other hand, if you are in a taxable account where rebalancing costs might be significant, you could postpone rebalancing by making them all equal 4x25 again.