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June 17, 2009


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I read The Four Pillars of Investing by Bernstein and also The Future for Investors by Siegel. from both I gleaned that it is best (for me) to rebalance every 12mos. They said nothing was really lost by waiting till 18mos either.

I just use a tool I downloaded from the web (Portfolio Rebalancer) and place a couple of trades.

No sweat and no lost sleep over the market!

I just don't see how rebalancing more often cannot be more beneficial, especially when markets are volatile. If you rebalance between a fixed income fund and other stock-based funds, you'll have many occasions where the stock fund goes up a lot or down a lot in a short period of time. For instance, if you make 2% gains by buying and selling 10 times in a year, you make 21.9%, (1.02^10) You just have to own enough funds to transfer between in order to avoid short term trading fees.

Less frequent rebalancing makes you miss out on the peaks and valleys although one could argue that these peaks and valleys are bigger over longer periods. And to do so at regular intervals without regard to these peaks and valleys seems as though it would negate the benefits of rebalancing.

I'm no expert, but sometimes I think that the investment companies discourage us from certain practices that might help us because these increases their costs. I'd be interested in reading other comments about my logic.

How do trading costs factor into this? for example, if i have an ETF portfolio of broad market index funds (and throw in some bonds) it seems that regular rebalancing could cost me more than it will help.

let's say stocks edge up slightly and bonds are flat. when considering my annual (or 6mo, 18mo) rebalance, i can see that i should trim a bit off stocks and move it to bonds correct? but trading costs may offset some of this tiny gain (i'm describing a small portfolio). all i'm saying is that rebalancing needs to be evaluated on a case by case basis if the portfolio is small, rather than an automatic move each period of X months.

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