The notion of rebalancing is not a new one.
Research also shows that rebalancing once a year will do more for investment returns. It adds up to 1.5%. Just as little bits erode, so too do little bits build over time!
Rebalancing creates a buy low, sell high trigger. as you can see in the image below if your assets drift out of balance you sell the higher (better performing) asset and by the lower (poorer performing) asset. Doing so means that you are selling high and buying low. Remember you’re not trying to time the market tops and bottoms you are simply, objectively, looking at the relative worth of the different assets and putting money into the cheaper of the two.
As the chart below shows (don’t worry about the actual underlying assets, simply look at the colours) no one asset class is dominant. Black does very well some…
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