The Ultimate Buy and Hold Portfolio

[Gigi]

My current portfolio is based on "The Ultimate Buy-and-Hold Strategy" written by Paul Merriman. A sample portfolio can be found here.

I'm using the ETF all equity porfolio:
10% S&P Depository Receipts (SPDR) S&P 500 (SPY)
10% Vanguard Value VIPERs (VTV)
10% I-Shares Russell Microcap Index (IWC)
10% Vanguard Small Cap Value VIPERs (VBR)
10% Vanguard REITs Index ETF (VNQ)
10% I-Shares MCSI EAFE (EFA)
10% I-Shares MSCI EAFE Value Index (EFV)
20% WisdomTree Int'l Small Cap Div Fund (DLS)
10% Vanguard Emerging Markets VIPERs (VWO)

There is a similar post regarding this here.

This is in a taxable account at Zecco. Because of the zero transaction cost, I can rebalance as often as I would like. For now I am only rebalance by adding funds. For example, REIT has been down lately so I added shares to it so it makes up 10% of my portfolio. I did not have to sell any gains to rebalance my portfolio because I have additional funds that I can invest.


Questions:
1) At one point (when I don't have enough cashflow to rebalance by only adding positions), I would need to sell gains to rebalance my portfolio to keep the risk-adjusted return high. How important is this rebalancing process considering I will have to pay taxes on my capital gains?

2) As Barron mentioned , you can lower volatility through hedging. Can this be applied given the portfolio I have, and if so, what is the easiest way about doing it?

Any other suggestions or input is appreciated.