It is a common strategy to rebalance your investment portfolio in order to reduce investment risk and lock in the profit. This is especially true when investing in unit trust, which is the easiest way to get you started investing in various classes of investment vehicles without much up-front capital.
Now, the question is: How often should you rebalance?
Annually? Monthly? or even weekly?
For the sake of convenience, most investors prefer to rebalance their portfolio in a yearly basis. Moreover, if switching and repurchasing of funds are involved, you will need to pay extra administration fees, which eventually eats into your portfolio returns.
The research team at Fundsupermart had conducted a research to observe if more frequent rebalancing will improve returns.
The results:
- The best return is obtained on annual rebalancing.
- The shocking result is that the more frequent you rebalance, the return drops, although not significantly.
It shows that you can do more with less – get higher return with less rebalancing.
If you are interested to read the four page report, download the pdf file here.
{ 4 comments… read them below or add one }
I agree that balancing the portfolio too frequently will actually affect the investment performance. In my professional practice, we help the client to rebalance their investment portfolio every 6 months.
How to determine when and what is the right re-balancing?
Does one need professional advice from time to time?
You should have your fund allocation in mind before any investment. The fund allocation will totally depend on your age and risk tolerance level and will give you a good guideline for re-balancing.
I think re-balancing should be based on % of deviation from the asset allocation planned. If the deviation is less than 20% to 25% of the planned allocation, what’s the point incurring costs? In addition, i’ll be chopping off growth at the knees – while it may still be growing.
eg. Allocation to Bond is 33%, Stocks is 34% and REITs/Properties 33%.
I’ll only re-balance if say my Stocks are now taking >= 34% + (34% *20%) to the other 2 assets