Portfolio Rebalancing: Essential Or Overrated?
By Lowell Herr: Portfolio rebalancing is as old as asset allocation and it is one of the cardinal rules of portfolio management. It is an action or discipline used by money managers to keep the percentages of the various asset class within stated target limits. Rebalancing policies assure the investor that the portfolio continues to be well diversified. If one never rebalances the market will determine the asset allocation plan for the portfolio. The portfolio manager or investor has two basic choices when it comes to portfolio rebalancing. They can rebalance on a calender year or according to some contingency plan. William Bernstein recommends rebalancing every one or two years. Error on the side of infrequency. ITA followers will note I use a contingency rebalancing plan that is built around target limits. These target limits are generally set at 20%, 25%, or even as high as 30%. The reason these percentages are asComplete Story »