Re: Re-Balancing the Portfolio
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Yeah, I am planning on adding more $ but it's gaining at a rate that is faster than I can add to the other funds. Thanks for the advice though.
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np...and just to give you an idea:
there are many backtesting studies that show the results over various time horizons of rebalancing annually, semi annually, monthly, weekly and daily.
taking into account transaction costs and maximizing the positive effects of rebalancing, most studies suggest monthly reblancing excluding tax effects. the overall benefit of monthly rebalancing for low turnover portfolios (depending on a bunch of factors) is 3-10%.
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but you should rebalance with all additions since that is frictionless.
Barron
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I can't cite the derivation since the book is at work, but "Investment Science" by Leuenberger has a derivation of gains from rebalancing assuming frictionless trading and a jointly normal return distribution. Adding in a reasonable linear tcost function and solving numerically gives results similar to what barron outlines.
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