Rebalancing is the unsexy hero of long-term investing. Done right, it adds 0.3–0.5% annualised return — for free.
Ask ten experts and you will get twelve answers. The underlying math, thankfully, only has one. Rebalancing is the unsexy hero of long-term investing. Done right, it adds 0.3–0.5% annualised return — for free.
Annual or semi-annual. Simple, predictable, easy to schedule.
Rebalance when any allocation drifts more than 5 percentage points. More responsive, slightly higher trading costs.
Check yearly, only rebalance if a threshold is crossed. Best of both.
In taxable accounts, rebalancing triggers gains. Direct new contributions to underweight assets instead.
What if my allocation never drifts? Then markets are flat. Rare. Usually one asset class moves 10%+ a year.
Can robo-advisors handle this? Yes — for a 0.25–0.50% fee. Worth it if you won't do it yourself.
Whatever number you land on, sanity-check it against a second method or a quick estimate in your head.