You Should Rebalance, and Here’s Why

A recent Morningstar article underscores the importance of rebalancing portfolios during a bear market. Here are some highlights: During a bear market, a buy-and-hold portfolio will see the equity allocation shrink much faster than the bond allocation—the opposite of what happens during a bull market. “Rebalancing– or selling a portfolio’s best performers to buy the worst performers periodically– is one of the best ways to protect against market movements altering a portfolio’s risk profile.” The… Read More

Why Rebalancing is Important

Those investors who have let the extended bull market drive their equity allocations  higher without rebalancing “may be holding riskier portfolios than they initially signed up for,” according to a recent article in Morningstar. The article offers the example of a “hands off” investor with a traditional 60/40 portfolio—without rebalancing, that portfolio could now be closer to 80% equities. While their risk tolerance could have risen along with the market, the article notes, “it’s more… Read More

Excess Returns, Episode 7: The Importance of a Sell Strategy and Disciplined Rebalancing Approach

As difficult as it is to figure out the right stocks to buy, determining when to sell can be even more challenging. In this episode, we look at the important factors to consider when deciding when to sell and develop a systematic sell framework that can be used for both quantitative and traditional investors. We discuss: Why it is important to develop a sell strategy up front How to limit the impact of emotion and… Read More

Rush Hour Traffic and Market Corrections

An article in CFA Institute highlights a “disappointing” statistic from a Gallup survey: “31% of investors would prefer to sit in gridlock than rebalance their portfolios,” and argues that “systematic rebalancing is one of the few opportunities for a nearly ‘free lunch’ that the markets offer.” The article notes that year-end 2018 was a good time to rebalance, that the market’s decline “gave investors an opportunity to buy at lower prices, which should lead to… Read More

Simple Rebalancing Rules Are Best

An article in The Economist  discusses the importance of asset allocation for every investor, citing the benefits of keeping it simple: “There is a better chance of sticking to a simple, fixed-weights rule than a complex one.” The article emphasizes that weighting is not the most important aspect of asset allocation. “What matters,” it argues, “is sticking to whatever weights are chosen. And that requires regularly rebalancing your portfolio.” Highlighting how rebalancing runs counter to… Read More

Funds Could Boost Expected Rates of Return

Fiduciaries may be overlooking a “very simple and lucrative source of expected returns,” according to a recent article in Chief Investment Officer. The article explains how fund return forecasts are based in part on Strategic Asset Allocation (SAA) by projecting a static SAA for a given level of risk. But market movements cause a portfolio to “drift around its SAA, so when approving an SAA policy, a board also approves allowable policy ranges before a… Read More

Investors Spooked by the Market Tumble Should “Buy and Hold”

Highlighting the fact that future stock market movements are “unknowable” and that trying to predict them can be “dangerous,” a recent Wall Street Journal article quotes the legendary investor Peter Lynch: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” The article says research data shows how individual investors lose over a “percentage point a year through timing errors,” and adds… Read More

It’s Time To Get Into The Rebalancing Act

By John P. Reese — If it ain’t broke, don’t fix it can be a useful mantra in many walks of life, but investors should be wary when applying this idea to asset allocations. Movements in the market can shift allocations and result in concentrations that might not necessarily fit your risk profile and/or investment goals. Suppose, for example, you create a portfolio comprised of 60% stocks and 40% bonds. If stocks see a period of… Read More

When Should You Rebalance?

Like many quantitative investors, Validea CEO John P. Reese uses a strict rebalancing approach to portfolio management. But just how often should you rebalance your portfolio? Reese says it may depend on the type of strategy you are using. “Rebalancing forces a disciplined buy/sell methodology into the investment process, removing emotions and biases that oftentimes hurt performance,” Reese writes in his latest column for Canada’s Globe and Mail. “Ben Graham – the man known as… Read More