If you read about investing in stocks and bonds, there is a lot of discussion about rebalancing your portfolio. Should you rebalance? When? How often? How much? Carl Ozeck contributes his thoughts on the Vanguard Blog article . However, sometimes you just like to see what the professionals actually settle on.
In Vanguard Personal Advisor Services®, we use a “time-and-threshold” blend for our rebalancing strategy. We review the portfolio quarterly and rebalance if its asset allocation has deviated by 5 percentage points or more. Blending these triggers results in a more complex strategy, but it has merit. If we use this strategy on a 60% stock, 40% bond portfolio, the average portfolio turnover would be about 1.95%2 and average Sharpe ratio about 0.51. This shows that rebalancing can help you mitigate your risk while spreading out rebalancing events over time.
(my review) is an add-on service where they actually manage your portfolio and perform the trades on your behalf. The cost is 0.30% of assets annually. Their paid service performs a quarterly check-in, and rebalances if a 5% threshold band is exceeded. I think this is a good rule to save as a “default” and then adjust as needed for your own circumstances.
For our portfolio, I also perform and then rebalance with the free cash from dividends and interest. If possible, investments from work income are also directed in a manner to help rebalance. I only rebalance further if a 5% threshold has still been exceeded after all that for at least two quarterly check-ins.
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