At the risk of sounding like the heretic in the group, I let the market rebalance my portfolio. I contribute in the same percentages as my target allocation, but I prefer to let my winners run, rather than sell my better performing funds to buy lesser-performing funds, just to keep some arbitrary allocation percentage intact.
Vanguard’s PhD team did a thorough analysis of this issue in October 2022 here. Their conclusion? For almost everyone, a single annual rebalance is optimal. Surprisingly simple results!
The best strategy for rebalancing a portfolio is one that is straightforward and easily implemented. I prefer systems which incorporate semi-annual or annual monitoring with stock/bond rebalancing thresholds of 5% or 10%. This should provide adequate risk control without undue time commitments or costs. Tax-deferred accounts should be targeted (to the extent possible) during the rebalancing process.
In addition to rebalancing per my current asset allocation ratio once or twice a year, I revisit my ratio with every major life or financial change. For example, I changed my asset weightings a few years ahead of my kids going to college, so I could be sure of sufficient stable value assets while paying their tuition. Not all at once, but a gradual shift in asset ratio in support of that big goal. Now I’m changing back over a few cycles to a higher equity weighting. Target date funds haven’t been a good choice for me so far, because my life “stages” haven’t matched the age-appropriate allocations these funds set. Maybe when I finally grow up and settle down…
At the risk of sounding like the heretic in the group, I let the market rebalance my portfolio. I contribute in the same percentages as my target allocation, but I prefer to let my winners run, rather than sell my better performing funds to buy lesser-performing funds, just to keep some arbitrary allocation percentage intact.
I admit that I do the same thing. I feel like selling winners or buying more of a worse return is somewhat timing
Vanguard’s PhD team did a thorough analysis of this issue in October 2022 here. Their conclusion? For almost everyone, a single annual rebalance is optimal. Surprisingly simple results!
The best strategy for rebalancing a portfolio is one that is straightforward and easily implemented. I prefer systems which incorporate semi-annual or annual monitoring with stock/bond rebalancing thresholds of 5% or 10%. This should provide adequate risk control without undue time commitments or costs. Tax-deferred accounts should be targeted (to the extent possible) during the rebalancing process.
In addition to rebalancing per my current asset allocation ratio once or twice a year, I revisit my ratio with every major life or financial change. For example, I changed my asset weightings a few years ahead of my kids going to college, so I could be sure of sufficient stable value assets while paying their tuition. Not all at once, but a gradual shift in asset ratio in support of that big goal. Now I’m changing back over a few cycles to a higher equity weighting.
Target date funds haven’t been a good choice for me so far, because my life “stages” haven’t matched the age-appropriate allocations these funds set. Maybe when I finally grow up and settle down…