Advisors and investors can follow two different rebalancing strategies: rebalance based on the calendar or rebalance on thresholds.
William Bernstein, the author of The Investor’s Manifesto, argues that the average investor should at the very least incorporate a calendar-based rebalancing schedule, which requires readjustments on a predetermined date, such as every quarter, year or couple of years.
Others suggests rebalancing based on a threshold, pointing out that rebalancing on a predetermined schedule may have an investor buying into the start of a bearish turn or sell at the start of a strong rally. Instead, an investor following a threshold-based rebalancing plan would adjust allocation for a specific asset class if it drifts a couple of percentage points above or below the target. However, Bernstein warns that this method is more complex and requires constant monitoring to keep the threshold in check.
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Max Chen contributed to this article.