The act of rebalancing may run counter to investor psychology – sell winners and buy losers – but the strategy helps promote good investment behavior.
Different financial advisors and investors may have varying rebalancing methodologies. The important thing to remember is to stick with it once you pick your rebalancing style.
For instance one may call for rebalancing at particular points in time, such as on a quarterly, semiannual or annual basis. A more common method follows specific thresholds – if an asset class is off by a certain percent of its target, typically between 5% and 10%, an investor would then rebalance.
Jaconetti suggests a combination of the two methods, recommending investors to rebalance if target allocations are off by 5% or more once or twice each year.
For more information on investing in ETFs, visit our ETF 101 category.
Max Chen contributed to this story