I would suggest you read this thread from forum member, Siamond, regarding the elusive rebalancing bonus.I was watching the following video recently at at 35:25, Rick talked about rebalancing being overrated. He mentioned that he doesn't like to rebalance.
https://www.youtube.com/watch?v=bjGaIw8n7Do
This is a sentiment expressed by my mom's FA, who stated that rebalancing too often is actually harmful. He feels that you rebalance if your portfolio is off by 10-15%. I also practice band based rebalancing instead of time based. In the beginning, I rebalance every year, but got lazy and rebalance only if it's off by over 10% because smaller changes are just noise. As a result, I often end up rebalancing every few years or after a big crash. I know that some members don't rebalance, but I feel that alters the risk profile. If I wanted a 90/10 to begin with, I would have gone with 90/10 and not start with 60/40 and let itself rise to a higher allocation.
One problem I notice is that there is no option in Portfolio Visualizer for non-timebased rebalancing. It would be nice to know if using a band based rebalancing would have a higher or lower return than a time-based one.
https://www.bogleheads.org/blog/2020/08 ... us-part-1/
Short answer: Rebalancing in most any form will likely not get anybody a returns bonus - at least not one you can count on. That's not what rebalancing is for, anyway. It's primarily to keep one's risk profile approximately constant. It's also not about selling so-called winners to buy so-called losers. An asset doesn't have to "lose" to fall behind some other asset - it merely has to have less returns than the other asset.
Rebalance less often will also result in fewer taxable events as well. One can also not reinvest distributions back into whatever investment they came from and, instead, reinvest them in whichever asset or assets are below target.
Finally, Portfolio visualizer does indeed allow for band-based rebalancing (both absolute and relative). It's under "settings" once you set up a portfolio to be backtested.
Cheers.
Statistics: Posted by dcabler — Mon Jun 24, 2024 6:10 am — Replies 6 — Views 831