The goal is not to have the highest average rate of return, the goal is to smooth out the peaks and valleys.But what are you aiming for?Rebalance, not only keeps your account in the percent allocation that you are aiming for, but also by rebalancing while your equities are high (doing better)- you are essentially scraping off the excess equity money to later spend from your more secure income, whether that be bonds, or cash. If you rebalance when your equities are low and bonds are high, you are buying equities at a discount.If some funds are doing better why do you want to rebalance?
What are some of the pros and cons to this or not doing it?
If you start at 60/40 S/B when the market is 50/50, do you want to rebalance back to 60/40 when the market rises to 60/40? You started out taking more risk than the market. Then, later, you rebalanced back to 60/40 with the same risk as the market.
Sharpe has a simple formula to account for the market change in his AAAP paper, but it requires that you record the initial market values.
I posted about this here: viewtopic.php?p=7658508#p7658508
Statistics: Posted by murrays — Thu Jan 25, 2024 8:17 am — Replies 43 — Views 4047