Jul

6

I noticed that advisers recommend rebalancing for several reasons:

1. It keeps target allocations in place.
2. What’s hot today may be cold tomorrow, and the reverse.
3. Accomplishes the goal of buying low and selling high by adding to underperforming assets and trimming outperforming assets.
4. Rebalancing can increase the consistency of returns and reduce the possibility of disappointing returns.

I wonder if this is propaganda to get the public to trade more than is necessary? If rebalancing is better than buy and hold for the reasons stated above, is it still better when taxes and transaction costs are factored in? Finally, if one did want to implement a rebalancing strategy, how would one determine the appropriate timeframe or trigger?


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